Dishonour Of Cheque 5 INTRODUCTION
The banking operations of any business depend upon the nature of business. The business of banking consists in acceptance, either for the purpose of lending and/or investment, of the deposits payable on demand or otherwise on demand and withdrawable by cheque, order or otherwise. The major functions of banks are (1) to mobilise the deposits from the public (2) to utilise activity, the banks make profits for themselves. Section 138 of the Negotiable Instruments Act, 1881: "Dishonour of cheque for insufficiency etc., of funds in the account. — Where any cheque drawn — Where by a person on an account maintained by him with the banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an arrangement made with that bank, such person shall be deemed to have committed an offence and shall, be deemed d eemed to have committed an offence and shall, without prejudice to any other provision of this Act, be punished with imprisonment for a term which may extend to one year, or with fine which may extend to twice the amount of the cheque, or with both: Provided that nothing contained in the section shall apply unless — (a) the cheque has been presented to the bank within a period of six months from the date on which it is drawn or within a 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 giving a notice, in writing, to the drawer of the cheque, within fifteen days of the receipt of information by him from the bank regarding the return of the cheque as unpaid; and (c) the drawer of such cheque fails to make the payment of the said amount of money to the payee or, as the case may be, to the holder in due course of the cheque, within fifteen days of the receipt of the said notice.
Explanation. — For the purpose of this section, "debt or other liability" mean a legally enforceable debt or other liability"
Object of The N.I. Act.Section-138 The main object of this piece of legislation is to inculcate faith in the efficacy of banking operations and credibility in transacting business on negotiable instruments. Section 138, THE NEGOTIABLE INSTRUMENTS ACT 1881 is intended to prevent dishonesty on the part of the drawer of negotiable instrument to draw a cheque without sufficient funds in his account maintained by him in a bank and induces the payee or holder in due course to act upon it. The dishonour of cheque is now a criminal offence punishable by imprisonment up to one year or with fine up to the double the amount of dishonored cheque or with both. Advent of cheques in the market have given a new dimension to the commercial and corporate world, its time when people have preferred to carry and execute a small piece of paper called Cheque than carrying the currency worth the value of cheque. Dealings in cheques are vital and important not only for banking purposes but also for the commerce and industry and the economy of the country. But pursuant to the rise in dealings with cheques also rises the practice of giving cheques without any intention of honoring them. Before 1988 there being no effective legal provision to restrain people from issuing cheques without having sufficient funds in their account or any stringent provision to punish them in the vent of such cheque not being honoured by their bankers and returned unpaid. Of course on dishonour of cheques there is a civil liability accrued. However in reality the processes to seek civil justice becomes notoriously dilatory and recover by way of a civil suit takes an inordinately long time. To ensure promptitude and remedy against defaulters and to ensure credibility of the holders of the negotiable instrument a criminal remedy of penalty was inserted in Negotiable Instruments Act, 1881 in form of the Banking, Public Financial Institutions and Negotiable Instruments Laws (Amendment) Act, 1988, which were further, modified by the Negotiable Instruments (Amendment and Miscellaneous Provisions) Act, 2002[3]. This article endeavors to elucidate the penal provision [4] light of the amendments and the judicial interpretations.
DISHONOUR OF CHEQUES:
Provisions for the penalties in case of dishonour of certain cheques for insufficiency of funds in the accounts are contained under Chapter XVII of the Negotiable Instruments, 1881 which has been instituted vide Section 4 of the Banking, Public, Financial Institutions and Negotiable Instruments Laws (Amendment) Act, 1988. the Statement of Objects and Reasons, as appended to the Bill preceding the Banking, Public Financial Institutions and Negotiable Instruments (Amendment) Act, 1988, read as follows: "This clause (clause 4 of the Bill) inserts a new Chapter XVII in the Negotiable Instruments Act, 1881. The provisions contained in the New Chapter provide that where any cheque drawn by a person by a person for the discharge of any liability is returned by the bank unpaid for the reason of insufficiency of the amount of money standing to the credit of the account on which the cheque was drawn or for the reason that it exceeds the arrangements made by the drawer of the cheque with the bankers for that account, the drawer of such cheque shall be deemed to have committed an offence and shall, be deemed to have committed an offence and shall, without prejudice to any other provision of this Act, be punished with imprisonment for a term which may extend to one year, or with fine which may extend to twice the amount of the cheque, or with both." The dishonour of cheque and the consequent non-payment of the amount due thereon vests a right in the payee (or holder in due course) of the said cheque to take recourse to the civil courts for the recovery of the said amount. However, whether the act of getting the cheque dishonoured due to lack of funds amounts to a criminal offence has been a matter of debate and has led to conflicting views and decisions. Since no specific criminal offence had been created in the statute book for the dishonour of cheque for lack of funds prior to the introduction of Chapter XVII into the Act by the 1988 amendment, whether the drawer of a dishonoured cheque could be prosecuted, depended upon interpretation and application of the relevant provisions of the general penal law contained in the Indian Penal Code, 1860. The drawer of a worthless cheque could be fastened with criminal liability under section 420 read with 415 of the Indian Penal Code, 1860, if it is proved that he is guilty of cheating. According to Section 415- "Whoever by deceiving any person, fraudulently or dishonestly induces the person so deceived to deliver any property to any person, or to consent that any person shall retain any property, or intentionally induces the person o deceived to do or omit to do anything which he would not do or omit if he were not so deceived, and which act or omission causes or is likely to cause damage or harm to that person in body, mind, reputation or property, is said to cheat".
Under Section 420, whoever cheats and thereby dishonestly induces the deceived person to deliver any property to any property shall be punished with imprisonment, which may extend to any person shall be punished with imprisonment, which may extend to seven year and/or fine. Every dishonour of a cheque cannot amount to the offence of cheating. To charge a drawer under these provisions, it needs to be shown that the cheated the payee or the person to whom he issued the cheque within the meaning of section 415 of the Indian Penal Code, 1860. the intention to cheat has to be demonstrated and proved. It had been held prior to the 1988 amendment, that the drawer of a cheque could not be fastened with criminal liability for cheating, merely on the ground that the cheque was dishonoured for want of funds. Such dishonour might only result in breach of contract by the drawer or amount to discreditable behaviour by him in business relations. It would make no difference if the cheque was post-dated since I has been held such a cheque, is a mere promise to pay on a future date, and a broken promise would not, of itself continue a criminal offence. It had been held that the issue of cheque in repayment of a debt, with knowledge on the part of the drawer that he did not then have sufficient and available funds with the drawee-bank to pay the cheque, did not amount to a criminal offence but only to a civil wrong. This was on the basis that the issue of a cheque did not imply any representation that the drawer has enough money in the drawee-bank to meet the cheque, since he may either have the authority to overdraw, or honestly intend to pay in the necessary funds before the cheque is presented to the bank for the payment. If, however, the drawer intended to cheat the payee or the person to whom he gave the cheque, he would be guilty cheating. If the circumstances could lead to the presumption that the drawer, when he issued the cheque must have been aware and even intended, that the cheque would and should have dishonoured, he would be guilty under section 420 of the Indian Penal Code, 1860. The position would be different if he had no knowledge, while issuing the cheque regarding the lack of funds with the drawee-bank. Whether the drawer is guilty of cheating would, therefore, depend upon his intention when he issued the cheque. To charge him under the Code, mens rea should be proved. However, it has also been held that the element of deception cannot be inferred in the absence of evidence to show that the mere drawing of the cheque amounted to a representation by the drawer that he had sufficient cash in the bank to cover the cheque at the point of time, or that he had definite knowledge that the amount to his credit would be sufficient to meet the cheque. British Courts have taken a different view it has been held in several cases that when a cheque is issued, there is an implied representation by the drawer that in the ordinary course, the cheque will be met on presentation on or after the date specified in it. Suppose the cheque is issued when the account is heavily overdrawn and there is, as the drawer well knows, no prospects of any funds will be paid into account before the date when the cheque matures or of the bank providing other overdraft facilities before that date. In such case, the drawer is guilty of deception.
Another aspect related to prosecution for dishonour under the general penal law was whether artificial persons like companies and corporations could b brought within the ambit of criminal offence of cheating. Though the Code of Criminal Procedure, 1973 itself provides that persons includes any company or association or body of persons, whether incorporated or not, but whether mens rea would be imputed to an artificial person which has no mind of its own, has been a matter of debate and conflicting opinions. Thus the state of law before the introduction of Chapter XVII was confusing and not at all healthy. The conviction of a person for the offence of cheating under Indian Penal Code, 1860 was extremely rare and the trial invariably led to acquittal. All the ingredients of the offence as provided in the code had to be proved and a very heavy burden was cast on the prosecution to prove the mens rea i.e., the guilty intention at the time of issue of cheque, the burden of which it rarely was able to discharge, and despite deceiving and duping the payee (or the holder in due course), the drawee of the cheque generally went sort free. This led to the situation where faith of the people especially the mercantile community in the efficacy of the cheques as mode of payment was shattered. Being alive to the situation, the legislature brought the desires change in law by the introduction of Chapter XVII in the Act.
OBJECTS, REASONS AND SCOPE;
The provisions have also been made that to constitute the said offence — 1. such cheque should have been presented to the bank within a period of six months of the date on which it is drawn or within the period of its validity, whichever is earlier; and 2. 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 giving a notice, in writing, to the drawer of the cheque, within fifteen days of the receipt of information by him from the bank regarding the return of the cheque as unpaid. 3. 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. In this arrangement, all the presumptions are made against the drawer of such cheques and thus the onus of the proof on the contrary to the left on the accused as against the prosecutor. Thus for the commitment of the offence under the section it is required that the cheque so dishonoured should have been issued for the discharge, in whole or in part, of any debt or other liability and as regards the proof thereof, it shall be presumed unless the contrary is proved, that the holder of a cheque received the cheque, for the nature referred to in Section 138 for the discharge, in whole or in part, of any debt or other liability. Not only this, it shall not be a defence in a prosecution for an offence under Section 138 that the drawer had no reason to believe, when he issued the cheque, that the cheque may be dishonoured on presentment for the reasons stated in Section 138. Similarly, in the case of the companies, every officer shall be deemed to be guilty of the offence, who was in charge of and was responsible to the company. Regarding the question whether the provisions to be afforded restrictive applications by confining it to the narrow category of cases where the rejection slip reads, "Insufficiency of Funds" or was it prescribed as the antinodes for the malignant trade practice of discriminately issuing cheques that are dishonoured without any consequences, it has been held that this is too narrow a construction of the section and fails to take into account the objects and reasons by which this section was introduced. The wording and endorsement form the bank or the circumstances from which a cheque is returned are not guiding criterion but the fact that on the presentation of the cheque, the payment was not made. There could be a host of reasons for this but the bottom line of the situation is that the payment could not be made by the banker and the mechanics of the reasons apart, he irresistible conclusion that had been available, the payment would have been made leads back to the position that dishonour, therefore, implies insufficiency of funds. It will have to be presumed that the multifarious grounds on which a cheque would be dishonoured are common place and in not having made any exception for such situations,
legislative intent behind section 138 was that cases of dishonour of a cheque would constitute a criminal offence unless the payment was forthcoming within the prescribed period. The reference to the term "Insufficiency of Funds" was obviously a qualifying clause which only reiterates the basic principle that an order to the bank conveyed through a cheque to make a prescribed payment would only fall in a situation where the bank could not implement that directive for the want of the requisite funds. The circumstances that may contribute to the situation would therefore be irrelevant. The reason apart that the dishonour had been occasioned because of insufficiency of funds and further that the criminal proceedings under section 138 were justified regardless the plea that civil action for the recovery had been initiated. Thus if the object of introduction of section 138 on the statute book is to be achieved it will have to be meaningfully enforced brushing aside the technical and frivolous pleas. The object of bringing Chapter XVII on the statute book appears to be to inculcate faith in the efficacy of banking operations and credibility in transacting business of negotiable instruments. Besides the availability of civil remedy against the drawer for the recovery of money, section 138 intends to prevent dishonestly on the part of the drawer of negotiable instruments to draw a cheque without sufficient funds in his account maintained by him in a bank and induces the payee or holder in due course to act upon it. Section 138 of the act makes a civil transaction to be an offence by fiction of law and has been incorporated with a specified object of making a special provision by incorporating a strict liability in case of dishonour of cheque due to insufficiency of funds. Act made provisions for conferring such privileges to the mercantile instruments contemplated under it. Special penalties and procedures can be provided in case the obligations under the instruments are not discharged. The provisions of Chapter XVII have been provided to encourage greater vigilance to prevent the usual callous attitude of drawers of cheques in discharge of debt or liability. The chapter has been incorporated to enhance the acceptability to enhance the acceptability of cheques in settlement of liability by making the drawer liable for penalties, in case of bouncing of cheques due to insufficiency of funds or for the reason that it exceeds the arrangement made by the drawer. Section 138 of the act has treated a contractual breach as an offence and the legislative purpose is to promote efficacy in banking and ensuring that in commercial or contractual transactions, cheques are not dishonoured and credibility in transacting business through cheques is maintained.
POINTS TO PROVE THE DISHONOUR:o make a person liable for the offence as under the section, the following points required to be proved.
(1) The cheque should have been dishonoured for the reason of insufficiency of funds lying in the account of the drawer or for the reason that it exceeded the arrangement. (2) The cheque so dishonoured was paid for the discharge, in whole or in part, of any debt or other liability. (3) The cheque so dishonoured must have been presented to the banker within a period of six months from the date on which it is drawn or within the period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier. (4) The payee or the holder in due course of the cheque should have issued the notice within fifteen days of the receipt of information from the bank regarding the return of the cheque. (5) Such notice should specifically make the allegation of the dishonouring of the cheque for the reason of insufficiency of funds and the notice should also specify that the notice so issued is by virtue of section 138 of the Act. (6) The notice should contain the date, the number the cheque is bearing, the name of the banker the cheque is drawn upon, the amount for which the same is drawn and the date of the issue of the cheque in case of the post-dated cheque or the anti-dated cheque. (7) The notice should also mention the consequences the accused may be held liable to face and notice should make specific demand of the amount of the cheque. (8) The drawer of the cheque so dishonoured should have failed to make the payment within a period of fifteen days from the date of receipt of such notice by him. (9) The complaint should have been failed within a period of one month from the expiry of fifteen days after the receipt of the notice by the drawer. (10) Such complaint should have been made be the payee or the holdr in due course, only in writing. (11) The complaint should have been filed before at least the Metropolitan Magistrate or a Judicial Magistrate of the First class.
SIGNIFICANCE OF SECTION 138:
Chapter XVII, was inserted by section 4 of Banking, Public, Financial Institutions and Negotiable Instruments Laws (Amendment) Act, 1988[1]. The provisions of Chapter XVII were introduced to enhance the acceptability of cheques in settlement of liabilities by making the drawer liable for penalties, in case of bouncing of cheques due to insufficiency of funds in the accounts or for the reason that it exceeds the arrangement made by the drawer, with adequate safeguards to prevent harassment of honest drawers. The drawing of a cheque that is eventually dishonoured on presentation to the drawee bank is, subject o fulfilment of certain conditions specified in these provisions, deemed to be an offence punishable with imprisonment and/or fine upto double the amount of dishonoured cheque. The requisite ingredients to constitute an offence under section138 are: (1)
the cheque should have been issued in discharge of a legally enforceable debt or liability;
(2)
the cheque should have been presented within a period of its validity;
(3)
the cheque should have been dishonoured for want of funds in the account of the drawer;
(4) the payee or holder of the cheque should have issued, within a specified time limit, a notice in writing to the drawer demanding the amount of cheque; (5)
the drawer must have failed to make payment within 15 days of receipt of the notice.
The non payment by the drawer within the period of 15 days gives a cause action to the payee or the holder in due course to file a complaint against the drawer within a period of one month from such cause of action, if he is to be prosecuted, with a competent court having jurisdiction. The chapter also specifically imputes liability to artificial persons as well as thus the debate about their criminal liability no longer subsists. Section 141 expressly extends to corporate bodies, including partnership firms, companies or other associations of individuals, the provisions of section 138, which thus applies to drawers who are either natural or juristic persons, or associations of persons. If a cheque falling within section 138 was drawn by or on behalf of corporate body, not only the body corporate but also every person who, at the time of drawing of the cheque was in charge of and was responsible to the aid body corporate for the conduct of its business, shall be deemed to be guilty of the offence, unless the cheque was drawn without that person's knowledge or he had exercised all due diligence to prevent the drawing of such cheques. The section would apply to chief executives of the body corporate, unless they can escape liability under the proviso thereof. Whether any other person would be so liable depends upon the particular circumstances of the case. If the cheque has been drawn with the consent or
the connivance of, or is attributable to any neglect on the part of, any director, manager, secretary or other officer of the drawer-company (or a partner of the drawer-firm, as the case may be), such person shall also be deemed guilty of the offence under section 138. INTERPRETATION OF CHAPTER AND SECTION 138:
It is general rule of interpretation of statutes that all penal statutes and provisions should receive a strict interpretation. This rule of interpretation is in consonance with the rule of presumption of innocence. Thus a person can only be held liable if his action squarely falls within the four walls of the penal provision and not otherwise. Section 138 of the Act creates a penal liability and as a natural corollary, the same should also receive a strict also not completely lose sight of the purpose and intent of the statute. Section 138 of the act makes a civil transaction to be offence by fiction of law. It basically clothes a civil dispute with criminally and thus, arguments have been advanced that the same should receive a very strict interpretation. A criminal prosecution is neither for recovery of money nor for enforcement of any security etc. Section 138 of the Negotiable Instruments Act, 1881, is a penal provision, the commission of such offence entails a conviction and sentence on proof of the guilt in duly conducted criminal proceedings. Once the offence under section 138 is completed, the prosecution proceedings can be initiated not for the recovery of the amount covered by the cheque but for bringing the offender to the penal liability. The Section is a departure from the usual proceedings are required to be strictly and punctually observed in the manner prescribed. However the Courts slowly moved away from the rule of strict and literal interpretation to the Heydon's Rule of interpretation[2]. When the scheme and object of the statute are likely to be defeated by strict interpretation. Courts must endeavour to resort to that interpretation that furthers the object of the legislation. The Court after considering that Section 138 had been incorporated with a specified object of making a special provisions provided in the Act for achieving them, the law that are required to be interpreted in the light of the objects intended to be achieved by it, despite there being deviations from the general law and the procedure provided for there redressal of the grievances of the litigants. Efforts to defeat the objective of law by resorting to innovative measures and methods are to discouraged, lest it may affect the commercial and mercantile activities in a smooth and healthy manner, ultimately affecting the economy of the country.
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PROSECUTION OF THE DRAWER OF THE CHEQUE:
The drawer of a dishonoured cheque can be fastened with criminal liability on the following conditions precedent being satisfied: (1) Cheque in discharge of a debt or liability: The cheque must have been drawn for payment of money to a person other than the drawer for the full or partial discharge of any legally enforceable debt or liability. (a) Drawing of cheque: A cheque is always drawn on specified banker and presupposes the existence of the relationship of banker and customer. The banker acts as customers and the customer can issue orders on the bankers for the withdrawal of the money standing to his banker. Such orders are generally issued in the form of cheques provide by the banker of customer. Although he cheque is drawn on the banker, the payee or holder in due course of the cheque has no remedy against the banker and his remedy lies against the drawer only. Drawing of cheque does not mean that the whole body of the cheque should be written or filled in by he drawer. There is no law that the body of the cheque must be in the handwriting of the drawer. Putting a date on blank cheque by payee who is a holder in due course is not a material alteration. If a person issued a signed blank cheque, there is no implied authority given to fill up the same. A post-dated cheque becomes a cheque only on the date which is written on the cheque and till that time, it is a mere bill of exchange. The said cheque can be presented within its period of validity, which has to be computed from the date it bears. (b) Debt or liability: To be brought within the mischief of Section 138, a cheque should presumably have been issued, and not merely drawn, for payment in discharge, wholly or partly, of a legally enforceable debt or liability. A ‘debt' is a liquidated amount of money owned and payable to another whether in present or in future. It is a pecuniary liability recoverable by action in respect of money demand. The provision includes not only debt but also other liability as well. The word liability denotes the state of being liable. It is the subjection to a legally enforceable charge or duty. The debt or other liabilities for the purpose of attracting the provision are to be legally enforceable. Thus, a cheque given as a gift or donation, or in discharge of a mere moral obligation, or for an unlawful or illegal consideration, would be outside the purview of the section. In Taher N Khambat v. Vinayak Enterprises[3], where in a loan transaction, a blank signed cheque was given a security, the court held that the provisions of section 138 of the Act were not attracted in such a case. The Court held that it could not b construed that the cheque had been issued voluntarily for the discharge of any debt or legal liability as envisaged under Section 138 of the Act. In Gummandi Ind Ltd. v. Kushroo F Engineer[4], post-dated cheques were given as security to be utilised in case of shortfall on sale of shares, if the same were not bought back within 180 days. It was held that it could not be said that the cheque had been issued without
liability. The cheque should be for the discharge of whole or part of the debt or liability and thus, it appears that if the same is for an amount more than the debt or liability, the provision is not attracted. (c) Legal enforceability of debt or liability: The debt must be legally enforceable for the purposes of prosecution under Section 138. Although the presumption operates in favour of the holder that the cheque has been issued in discharge of a legally enforceable debt or liability but such a presumption is rebuttable. The Limitation Act, 1963 prescribes periods of limitation of actions after which, no legal proceedings can be initiated for the recovery of the amount. Prosecution is not maintainable, where the debt is time barred on the date of issue for a timebarred debt without any acknowledgement, which could extend the limitation, is not legally enforceable and no complaint can lie on the same. In Amit Desai v. Shine Enterprises[5], it was held that legally enforceable debt or liability has to be in the nature of civil suit because the debt or liability cannot be recovered by filing a civil suit because the debt or other liability cannot be recovered by filing a criminal case, thus a bar under Section 69(2) of the Indian Partnership Act, 1932 equally applies to Section 138. It is submitted that the above judgement does not state the correct law and mixes two separate issues of the enforceability and competence to maintain proceedings. Further, Section 69(2) of the Indian Partnership Act, 1932 only bars proceedings of a civil nature and does not bar criminal proceedings. (d) Whose debt or liability: The debt or liability need not be of he drawer of the cheque towards the payee. The cheque may have been issued for dishonouring the debt or liability of some person other than the drawer and the provision of Section 138 would other than the drawer and the provision of Section 138 would nevertheless get attracted. The use of the words, ‘such person' in Section 138 means the drawer of the cheque, even though the debt or liability may be someone else. The use of the words, ‘where any cheque' and ‘of any debt or other liability' manifest that for whatever reason the cheque may have been issued, the liability under the provision can not be avoided in the event of the same being returned by the banker unpaid. A cheque given in discharge of the drawer's liability a guarantor would fail within the ambit of Section 138. So also a surety can also be prosecuted under the provisions of Section 138 for cheque issued by him. Where a cheque is issued by a person from his personal account, though for the discharge of the liability of the company, he alone, being the drawer, can be prosecuted and not the company. Conversely, where the cheque is issued by the company, the prosecution in individual capacity cannot be maintained. (e) Presumption of legal enforceability of debt or liability: A presumption casts a duty on the court to presume a certain state of things as correct, unless and until the same are proved to be
incorrect. Under Section 139, there is a legal presumption that the holder of a cheque, which falls within Section 138 received it for the discharge of a debt or liability. The initial burden, albeit a very light one, is on the complainant to show that the cheque was issued in discharge of a legally enforceable debt or other liability. The Court then is to presume that the holder has received the cheque for the discharge of a debt or liability. Then, the burden shifts to the drawer-accused to establish that he cheque was not of the nature referred to in Section 138. In doing so, he may l on circumstantial evidence. Section 139 of the Act can be said to have been provided merely as abundant caution since the presumption a to the issuance of the negotiable instrument including cheques for consideration already exists in Section 118(a) and (g) of the Act. In Teju Mal v. Daya Ram[6], it was observed that Section 118 of the Act provides a special rule of evidence contrary to the case of an ordinary contract. The statutory presumption in favour of there being consideration for every negotiable instrument continues, unless it is rebutted. When the cumulative effect of various factors and circumstances has been sufficient for destroying the presumption and place, the person in a position where he cannot succeed only on the basis of the presumption, is required to establish by cogent and positive evidence that the document sued upon was supported by consideration. The Supreme Court in Hiten P Dalal v. Bratindranath Banerjee[7], has considered the effect of the presumptions under the Act. The Court held that further held that the rebuttal does not have to be conclusively established but such evidence must be adduced before the court, in support of the defence that the court must either believe the defence to exist or consider its existence to be reasonably probable, the standard of reasonableness, b eing that of a ‘prudent man'. The presumption has been held to apply where he cheque was drawn for a loan, four year prior to the date of cheque. It was held that the amount does not cease to be legally enforceable for the purpose of complaint under Section 138 of the Act. There is a statutory presumption under Sections 118 and 139 of the Negotiable Instruments Act, 1881 and Section25(3) of the Contract Act which applies and the complaint cannot be dismissed at the threshold. The presumption has also been held to apply where a post-dated cheque for an amount larger than debt was under consideration in a complaint under Section 138. It was held that the excess amount may be for interest and hence, the presumption prevailed. (f) Rebuttal Presumption: Under Section 139, there is a presumption that the cheque was issued for legally enforceable debt. This presumption is rebuttable and the onus and burden for rebutting the same is on the drawer. The rebuttal has to by proof and cogent evidence and not by mere explanation. Mere denial etc. does not shift the burden on the complainant. The accused has to prove at the trial by leading cogent evidence.
The Supreme Court in Hiten P Dalal v. Bratindranath Banerjee, held that th e words ‘unless the contrary is proved' which occur in the provision makes it clear that the presumption has to be rebutted by proof and not by a bare explanation which is merely plausible. Since the presumption an only be rebutted by leading cogent evidence to the contrary, such pleas can only be determined at the time of trial and not at the initial stage. In Suraj Sharma v. Ajay Dahiya[8], the drawer of a cheque that had been returned unpaid for want of funds contended that he had already repaid the debt in question, whereas the payee-complainant denied having been repaid. The court refused to quash the complaint holding that whether debt had been repaid would have to be established during the trial. Similarly, in M Sreeramulu Reddy v. NC Ramaswamy[9], it was held that whether the dishonoured cheque had been given merely as collateral security for debt due to the payee on the undertaking that the cheque should be presented for payment not at all was question to be determined during the trial. (2) Presentment of the cheque to the drawee-bank: The cheque must have been presented to the drawee-bank within six months from the date on which it is drawn, or within the period of its validity, whichever is earlier. (a) Period of validity of cheque: The ‘period of validity' of a cheque has not been defined under Chapter XVII. It cannot obviously mean the three-year period of limitation of actions on the cheque against the drawer. Perhaps, the period refers to any period that may be expressly stated on the cheque itself. For instance, dividend warrants drawn in the form of cheques often limit their validity to three months from the dates t hey bear. It is not clear if ‘the period of validity' otherwise refers to the period during which the cheque would not be considered stale; if it does, there seems no need to specify the alternative of six months from the date of drawing. The period of six months owes its origin to the generally prevalent banking practice according to which, a cheque is considered to be stale after a period of six months from the date it bears. If the cheque is presented after this six months period, it shall not be honoured by the banker but would be returned as being stale. This six months period is not universal and if the validity of the cheque is for a period lesser than the period of six months, the cheque has to be presented within that period. (b) Computation of period of validity: The phrasing of Section 38 on this aspect is not precise as it seems to recognise the generally adopted banking practice of treating cheques as stale, if presented for payment beyond six months from the dates they bear. However, the section reckons the six months period from the date of drawing, not the date the cheque bears. A literal interpretation which treats the six month period from the ‘date the cheque is drawn' would obviously make a difference between cheques that bear the same dates as those on which they are drawn and those that are ante or post-dated, i.e., those that bear dates earlier or later than the actual dates of drawing.
In Babu Xavier v. Lalchand Munoth[10] held that cheques ante-dated and post-dated beyond six months from the date the cheque would be out of the purview of Section 138. Dissenting from this opinion in Manoj K Seth v. RJ Fernandez, adopted a construction that in its view would fit into the context and serve the object of the provision. The court held that for the purpose of Section 138 a post-dated cheque has to be considered to have been drawn on the date it bears, and the condition prescribed in the section is satisfied, if the cheque is presented for payments within six months from the date the cheque bears. (c) Presentment to which bank: Proviso (a) to Section138 only provide that the presentment ha to be within the period of validity of cheque or six months, whichever is earlier and it does not specify as to which bank this presentment has to be made within i.e., the collecting bank or the paying bank. If the literal interpretation is adhered to, then the section merely requires presentment to the bank within the period of six months and since the bank is not specified, the same can be to any bank. There were conflicting views on the aspect, while some decisions laid that the only requirement was that the cheque has to be presented within six months period and thus, such presentation can be to either the collecting bank or to the paying bank, the others held that the presentation has to be to the paying bank within the period of validity of cheque. It is submitted that the decisions in favour of presentation within period of validity to any bank which merely interpreted the language of the provision literally, were not correct since they did not consider the fact that in such a case, as per the banking practice and norms, the bank would return the cheque as being sale and not for insufficiency of funds. (d) Repeated presentment and dishonour of the cheque: The interpretation of Section 142 had given rise to conflict of vies among various High Courts. The controversy centred on the question: When a cheque us repeatedly presented and dishonoured within the period prescribed in Section 138, does a cause of action arise against the drawer on each and every dishonour, or only once hen the cheque is first dishonoured? This question assumed significance because if it was only the first dishonour that gives rise to a cause of action and the holder or the payee failed to make a written demand on the drawer within 30 days of the receipt of the notice of that dishonour, he would be loosing his right to prosecute the drawer under this Chapter, even though the cheque remains unpaid despite subsequent presentations. Some judges have subscribed to the view that, if more than cause of action could be created on the same cheque, the drawer could be prosecuted, and even convicted again and again on the strength of the same cheque; and this could not have been the intent of the legislatures. In this view, the holder was expected to invoke the provisions of Section 138 immediately on the first dishonour, if he desired to avail himself of the penal remedy, and not sleep over it and wait till a subsequent dishonour to initiate action. Once a cause of action had arisen, limitation would begin to run, and it could not be stopped by presenting the cheque again, so as to create a fresh cause of action and a fresh period of limitation.
In Bhagat Ram v. State of Punjab[11], that where the cheque is represented at drawer's request and dishonoured gain, a criminal complaint can be filed on the basis of the second dishonour. In SKD Lakshmanan Fire Works v. KV Sivaramakrishnan[12], held that successive cause of actions may arise on the basis of one and the same cheque for filing a complaint under Section 138 and 142. However, in view of Section 300 of Code of Criminal Procedure, 1973 only one conviction is possible. The cause of action may get barred or become ineffective, if no complaint is filed in time. So long as the cheque remains unpaid, and the payee or the holder in due course is able to establish all the ingredients of the offence and satisfy the other requirements of Sections 138 and 142, a complaint will be maintainable even if it was not filed on the basis of an earlier cause of action. It is also observed that there is no reason to think that the legislature intended to confine the remedy of prosecution to the first default committed by the drawer in making the payment on the first demand issued under clause (b) of the proviso to Section 138 and not to any subsequent default. Otherwise, the drawer who persists in his default will be relieved of his criminal liability specifically imposed by the amending legislation, thus defeating its object. In P Jawahar v. SS Pillai[13], it was held that the maintainability of the complaint based on dishonour of the cheque upon representment is not affected by the dismissal of an earlier complaint, based on dishonour upon first presentment. (3) Reasons for Dishonour: The cheque must have been returned unpaid by the drawee-bank either because of insufficiency of funds in the drawer's account on which it is drawn, or because the cheque exceeds the amount arranged to be paid from that account by an agreement made with the bank. A cheque may be returned by the banker for a variety of reasons. The bankers generally have a printed Performa, wherein the reasons are stated and the reason for which, the cheque is dishonoured is marked out by the bank. Section 138 is not attracted in case of dishonour for each and every of such reasons. The Section speaks of only two eventualities, which, in effect, represents a situation where the drawer has insufficient or no funds or credit facility available with the drawee-bank for payment of the cheque, in question. It would appear that, to avaid penalties under Section 138, the drawer can only rely on an express overdraft agreement with the drawee-bank, and not on an implied agreement arising from the course of past dealings between him and the bank. The Section specifically provides for return of cheque due to insufficiency of funds or due to exceeding of arrangement with the bank. There is no guidance in the provision as to whether return of the cheque on nay other ground may also be covered courts have differed in the interpretation and application of Section 138, particularly with regard to the significance to be attached, in taking cognisance of a complaint under Section 142 against the drawer, to the reason given by the drawee-bank while returning the cheque in question.
Going by the maxim that penal provisions have to be construed strictly and not liberally, the Court held that Section 138 provides for punishing the drawer of a dishonoured cheque only in the two eventualities specified in the Section, namely, insufficiency of the drawer's funds in the hands of the drawee bank, and where the amount of the cheque would have exceeded an agreement with the bank, an not on any other ground and that the express mention in Section138 of only two reasons for dishonour, implied the exclusion of any other reason. (4) Dishonour/demand notice to the drawer: Within 30 days of receipt of information from the bank about dishonour of the cheque, the payee or the holder in due course, as the case may be, should have made a written demand on the drawer for payment of the amount of money represented by the cheque. (a) Intimation from the bank: the bank referred to in clause presumably means the draweebank, which is referred to in Clause (a) and in the operative part of the section. However, the payee or the holder in due course of the cheque would receive notice of dishonour from the drawee-bank only if he presents the cheque directly to that bank, or deposits the cheque into his account with the same bank. It is however quite possible that the cheque is presented to the drawee-bank through another bank of which the payee or holder in due course is a customer, in which case, he would not receive the notice of dishonour directly from the drawee-bank, but may receive the notice through the collecting bank. In some cases, the collecting bank may be acting as agent of the banker to the payee or the holder in due course. In any case, the period of 30 days notice from the date of receipt of notice of dishonour of the payee or holder in due course whether the notice is received from the drawee-bank or the collecting-bank. Receipt of information regarding dishonour of cheque means the receipt of the same in writing and even though the payee knows about the dishonour, the period of limitation starts running only from the date of receipt of information in writing from the bank. (b) Issue, form and Purpose of notice: The section mandates that the payee or the holder in due course, as the case may be to issue a notice to the drawer and does not require that the same has to be signed by them. No express or specific form of notice has been prescribed. The notice however has to be in writing. An oral communication of dishonour to the drawer does not satisfy the requirements of the provision. The object of sending a notice is to give chance to the drawer to rectify his omissions, and to protect an honest drawer. The object of the notice indicating a factum of dishonour of the cheque is to give an opportunity to the drawer to make the payment within fifteen days, so that it will not be necessary for the payee to proceed against him in any criminal action, even though the bank dishonoured the cheques. The purpose of giving notice is to bring it to the notice of the drawer of the cheque that the cheque he had issued had been dishonoured and to put him on guard to make payment to avoid prosecution.
CONCLUSION:
Though insertion of the penal provisions have helped to curtail the issue of cheque light heartedly or in a playful manner or with a dishonest intention and the trading community now feels more secured in receiving the payment through cheques. However there being no provision for recovery of the amount covered under the dishonoured cheque, in a case where accused is convicted under section 138 and the accused has served the sentence but, unable to deposit amount of fine, the only option left with the complainant is to file civil suit. The provisions of the Act do not permit any other alternative method of realization of the amount due to the complainant on the cheque being dishonoured for the reasons of "insufficient fund" in the drawer's account. The proper course to be adopted by the complainant in such a situation should be by filing a suit before the competent civil court, for realization/ recovery of the amount due to him for the reason of dishonoured cheque which the complainant is at liberty to avail of if so advised in accordance with law. .
Debt Recovery Act Of India The government of India, as a step to streamline the system appointed committees like ‘Tiwari Committee', ‘Narasimham Committee'. The Narasimham committee and a high level co mmittee headed by Shri V.S. Hedge. All these committee recommended in one voice for establishing special tribunals for speedier adjudication of the claims of the banks and financial institution. The main focus or aim of all these committee is to avoid delay in the adjudication proceeding and attain the same expeditious.
Debt Recovery Tribunal In India In many of the developing countries and the transition economy, the quality of the formal judicial institution is poor. The cases in the court are subject to long delay. As a result the economic agents can not depend on the courts for the protection of their property rights, leading to the high transactions costs and other contracting problems. A large and the growing body of the theory suggest that in such a situation some welfare improving transaction will not be undertaken.
Arbitration And Conciliation In India The law relating to arbitration is contained in the Arbitration and Conciliation Act, 1996. It came into existence from 25th January 1996. It extends to the whole of India except the State of
Jammu and Kashmir. The Act is of consolidating and amending nature and is not exhaustive. But it goes much beyond the scope of its predecessor, the 1940 Act. Hence there is a need to analyse the old Act. The Act was said to be the Arbitration Act, 1940.
