Project Report

On

PENALTIES IN CASE OF DISHONOUR

OF CERTAIN CHEQUES
(Under The Negotiable Instruments Act, 1881)

SUBMITTED TO: SUBMITTED BY:

Ms. Parul Junisha

B.com. LL.b.(Hons.)

Roll No.- 153/16

8th Semester
 ACKNOWLEDGEMENT

I would like to express my sincere gratitude to Ms. Parul for giving me the opportunity to do my
project on one of the most interesting, relevant and important topic “Penalties in case of
Dishonour of certain Cheques” . I am highly indebted to ma’am for her guidance and constant
supervision. Without her support and help in providing necessary information for the project, I
would have never been able to complete it successfully.

My thanks and appreciation goes to my parents and friends as well. They encouraged me at
every step and motivated me to do my best. All that I have done is due to their assistance and I
am deeply grateful to them.

I am thankful to University Institute of Legal Studies (UILS), Panjab University for providing
me with a well equipped library full of books relating to my project topic which helped me to
understand the topic thoroughly for making my project.

2
 TABLE OF CONTENTS

Sr. No. Particulars Page No.

1. Introduction 5
2. Cheque under The Negotiable Instruments Act, 1881
Dishonour of Cheque 6
Reasons for dishonour of Cheque
3. Penalties in case of Dishonour of Cheque under The Negotiable
Instruments Act, 1881
i) Criminal Liability under Section 138
- position prior to insertion of Section 138
- objective of insertion of Section 138
- Nature of offence under Section 138
- Essentials for constituting liability under Section 138
- Conditions precedent in proviso to Section 138
- Penalty under Section 138
- No requirement of mens rea under Section 138
ii) Presumption in favour of Holder under Section 139
7- 18
iii) Presumption of Consideration under Section 118
iv) Offences by Companies (Section 141)
v) Cognizance of offences ( Section 142)
vi) Summary trial of cases ( Section 143)
vii) Interim Compensation to Complainant (Section 143A)
viii) Mode of service of Summons ( Section 144)
ix) Evidence on Affidavit ( Section 145)
x) Offences to be compoundable ( Section 147)
xi) Appellate Court to order payment by accused pending Appeal
against Conviction( Section 148)
xii) Important/ Relevant recent Case laws
4. Conclusion 19
5. Bibliography and Webliography
20

3
 TABLE OF CASES

Sr. No. Name of the case Page No.

1. Dashrath Rupsingh Rathod v. State of Maharashtra, (2014) 9 SCC

10, 11, 14
129
2. Electronics Trade and Technology Development Corporation v.
Indian Technologists and Engineers (Electronics) Pvt. Ltd., A.I.R. 9
1996 S.C. 2339
3. G.J. Raja v. Tej Raj Surana, SLP(Crl.) No.3342 of 2019 16
4.
Hiten P. Dalal v. Badrinath Banerjee, A.I.R. 2001 S.C. 3897 11
5. Indian Bank Association & others v. Union of India and ors., (2014)
17, 18
5 SCC 590
6. Makwana Mangaldas Tulsidas v. The State of Gujarat and Anr., SLP
18
(Criminal) no. 5464 of 2016
7. Meters and Instruments (P) Ltd. v. Kanchan Mehta, (2018)1 SCC
15, 17
560
8. Modi Cements Ltd. v. Kuchil Kumar Nandi, (1998) 3 SCC 249 9
9. N. Parameswaran Unni v. G. Kannan, (2017) 5 SCC 737 10
10. Pankaj Mehta v. State of Maharashtra, A.I.R. 2000 S.C. 1953 13
11. Ritaben Ashokbhai Shah v. Sanjay Kanubhai Seth, 2004 Cri.L.J.
13
1058 (Guj.)
12. S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla and Another, (2005) 8
13
SCC 89
13. S.S.Deswal and Ors.v. Virender Gandhi and Anr., Cr. Appeal
17
Nos.1936-1963of 2019.
14. Sudhir Kumar Bhalla v. Jagdish Chand, Cr. Appeal 776 of 2008 8
15. Vinay Devanna Nayak v. Ryot Seva Sahakari Bank Ltd., A.I.R. 2007
8
S.C. 716

4
 INTRODUCTION

Negotiable instruments play a vital role in today’s business world. Instruments like Cheques,
bank drafts, bills of exchange are easy way of trade and commerce transactions. Specifically, the
use of Cheque has given a new dimension to the business and corporate world. Cheque being a
piece of paper is easy to carry and move, thereby adding to its worldwide acceptance.

With the rapid increase in commerce and trade, use of Cheque also increased and so did the
Cheque bouncing disputes. Thus, the need was felt for some law which could ensure credibility
to the holder of the negotiable instrument thereby facilitating trade and commerce also.

Before 1988, there was no effective legal provision to restrain people from issuing Cheques
without having sufficient funds in their account nor any stringent provision to punish them on
Cheque not being honored by their bankers and returned unpaid. The money could be recovered
on filing a civil suit by the holder but it would take a lot of time. Hence, the usage of Cheques
has been regulated in India through Negotiable Instruments Act, 1881under which dishonour of
Cheques is a punishable offence.1

1
Admin Lawnn, “Penalties in case of Dishonour of Cheque”, (2017) available on < https://www.lawnn.com/penalti
es-in-case-of-dishonour-of-cheque/ > retrieved on 1st March, 2019 at 10:58 a.m.

5
CHEQUE UNDER THE NEGOTIABLE INSTRUMENTS ACT, 1881
As per Section 6 of The Negotiable Instruments Act, 1881, a Cheque is a bill of exchange which
carries a mandate of the drawer to his banker to pay the sum specified in the Cheque to the
bearer or the person whose name is mentioned on the same, on demand or when the same is
presented to the banker.2

DISHONOUR OF CHEQUE
A Cheque is said to be dishonoured when the Cheque signed by the drawer is presented for the
payment to the drawee bank and such payment is not made as the maker, acceptor or drawee
makes any default.3

REASONS FOR THE DISHONOUR OF CHEQUE

There could be many reasons for dishonour of a Cheque such as:

• Insufficiency of funds in the account,

• Bank account being closed at the time of presentation of Cheque to the bank,
• Stop payment – It is a formal request or order or an instruction given by the customer or
drawer to the bank to stop payment of the amount in case of Cheque issued by him upon
the presentation of such Cheque by the drawee. It is usually requested when the Cheque
has been declared lost or missing or when there are no sufficient funds available in the
account to make payment of specified amount in the Cheque.
• Reference to the drawee by the bank etc.

The Negotiable Instruments Act, 1881 makes dishonour of certain Cheques as an offence and
thus, imposes a penalty for it.

PENALTIES IN CASE OF DISHONOUR OF CHEQUES UNDER THE

NEGOTIABLE INSTRUMENTS ACT, 1881
The Banking, Public Financial Institutions and Negotiable Instruments Laws (Amendment) Act,
1988 added a new chapter to the Act relating to penalties under Chapter XVII containing
Sections 138 to147 which were further amended by The Negotiable Instruments (Amendment)
Act, 2002. Moreover, Sections 143A and 148 has been added by The Negotiable Instruments
(Amendment) Act, 2018.

1. CRIMINAL LIABILITY OF DRAWER IN CASE OF DISHONOUR OF CHEQUES IN

CASE OF INSUFFICIENCY OF FUNDS UNDER SECTION 138

2
Supra note 1at p.5.
3
R.K. Bangia, The Negotiable Instruments Act, 1881 124 (Allahabad Law Agency, Faridabad, Haryana, 12 th edn.,
2019).

6
Section 138 presently after coming into force of The Negotiable Instruments (Amendment and
Miscellaneous Provisions) Act, 2002 is as follows:

Section 138 - Dishonour of Cheque for insufficiency, etc., of funds in the account –

Where any Cheque drawn by a person on an account maintained by him with a banker for
payment of any amount of money to another person from out of that account for the discharge, in
whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of
the amount of money standing to the credit of that account is insufficient to honour the Cheque
or that it exceeds the amount arranged to be paid from that account by an agreement made with
that bank, such person 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 extended to two years, or with fine which may extend to twice the amount of the Cheque, or
with both:

Provided that nothing contained in this 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 the period of its validity, whichever is earlier;

(b) the payee or the holder in due course of the Cheque, as the case may be, makes a demand for
the payment of the said amount of money by giving a notice in writing, to the drawer of the
Cheque, within thirty days of the receipt of information by him from the bank regarding the
return of the Cheque as unpaid; and

(c) the drawer of such Cheque fails to make the payment of the said amount of money to the
payee or as the case may be, to the holder in due course of the Cheque within fifteen days of the
receipt of the said notice.

Explanation.—For the purposes of this section, “debt or other liability” means a legally
enforceable debt or other liability.

1.1. Position before coming of Section 138- Prior to insertion of Section 138 in The
Negotiable Instruments Act, 1881 a dishonoured Cheque left the person aggrieved with
the only remedy of filing a claim. The remedy available in Civil Court is a long drawn
matter and an unscrupulous drawer normally takes various pleas to defeat the genuine
claim of the payee.4

Section 138 has converted civil liability into criminal offence. This has been inserted by the
Parliament with the object and purpose of holding a person criminally responsible for his acts in

4
Pragyaaishwaya, “Dishonour of Cheques” (2017) available at < http://www.legalservicesindia.com/article/236/Dis
honour-Of-Cheques.html> retrieved on 8th March at 06: 02 p.m.

7
commercial transactions trade and business dealings with people carried out carelessly or without
sense of responsibility.

1.2. Objective of inserting Section 138 in year 1988- The main objective of incorporating
Section 138 in the act by amendment in 1988 was to inculcate faith in the efficacy of
banking operations and credibility in transacting business on negotiable instruments to
prevent issuance of dishonest Cheques by the drawer.5

Case:- Vinay Devanna Nayak v. Ryot Seva Sahakari Bank Ltd.6

In this case, it was held that the object behind insertion of S. 138 was to regulate financial
promises in growing business, trade, commerce and industrial activities of the country and the
creation of the strict liability to promote greater vigilance in financial matters so as to safeguard
the interest of the creditors.

1.3. Nature of offence under Section 138 - An offence committed under Section 138 is a
bailable, compoundable and non-cognizable.

1.4. Essentials/ Ingredients to constitute an offence under Section 138-

➢ A Cheque is drawn by the accused on an account maintained by him with a banker.
➢ Cheque should have been issued for the discharge of any debt or liability, whether in
whole or in part. Moreover, the debt or liability means a legally enforceable debt or
liability.7

Case:- Sudhir Kumar Bhalla v. Jagdish Chand8

Here, the Supreme Court expounded that Cheques issued for security purposes would not
come under the purview of the Section 138 as the provision only attracted liability for
dishonour of Cheques which were drawn for discharging debt or liability. Whereas, the
Cheques drawn to discharge the drawer’s liability as a surety, self-addressed Cheque and pay
order being closer to a bill of exchange were considered under the ambit of this section.

➢ The Cheque is returned by the bank unpaid, for either

a) insufficiency of funds or
b) that the amount exceeds the arrangement made with the bank,
the offence standing committed, the moment the Cheque is returned unpaid.

5
Akanksha Yadav, “Position of law on Cheque bounce and punishment in India”, (2018) available at < https:
//www.latestlaws.com/articles/section-138-ni-act-position-of-law-on-cheque-bounce-and-punishment-in-india-by-ak
anksha-yadav/> retrieved on 27th February at 10:33 p.m.
6
A.I.R. 2007 S.C. 716.
7
Explanation to Section 138.
8
Cr. Appeal 776 of 2008.

8
Liberal interpretation of the term “insufficiency of funds”- It has been held by the Court on
various occasions that the dishonour due to the remarks “Account closed”, “refer to the drawer”
or “Stop payment” of the Cheque may be deemed to be covered by the provision contained in the
Section 138. Insufficiency of funds has been held to be genus while other reasons for dishonour
of Cheque such as Account closed, Stop payment or non-matching of signatures are held to be its
species.9

Cases in relation to “Stop Payment” -

Case:- Electronics Trade and Technology Development Corporation v. Indian Technologists

and Engineers (Electronics) Pvt. Ltd.10
Facts: The appellants presented a Cheque which was issued to them by the respondents for
payment. However, the Cheque was returned dishonoured to the appellants with the endorsement
that the Cheque was not being paid due to the instructions from the respondents (drawer)
stopping the payment of the same.

Question involved: Whether dishonestly stopping the payment of a Cheque issued by a drawer
came within the ambit of S.138?

Held: It was observed by the Court that even if Cheque is dishonoured because of stop payment
instruction to the bank, section 138 would get attracted, yet for the reasons recorded in paras 5
and 6 of the judgment, the Court was satisfied that no case under section 138 of the Act was
made out and, therefore, was pleased to quash the complaint in question.

It was observed that after the Cheque is issued to the payee or to the holder in due course and
before it is presented for encashment, notice is issued to him not to present the same for
encashment and yet the payee or holder, in due course, present the Cheque to the bank for
payment, and when it is returned on instruction, section 138 does not get attracted.

Case:- Modi Cements Ltd. v. Kuchil Kumar Nandi 11

It was held that insufficiency of funds at the time of issue of Cheque does not by itself create the
presumption of dishonesty in the issuing of the Cheque. If before the presentation of Cheque in
the bank, sufficient amount is arranged and the Cheque is honoured, Section 138 will not apply.

1.5. Conditions precedent laid down in proviso to Section 138

However, there are three distinct conditions precedent which are laid down in proviso to
Section 138, which must be satisfied before the dishonour of a Cheque can constitute an offence
and become punishable. These conditions have been incorporated with a view to avert

9
Avtar Singh, Business Law (Principles of Mercantile Law), 490 (Eastern Book Company, 11th edn., 2018).
10
A.I.R. 1996 S.C. 2339.
11
(1998) 3 SCC 249.

9
unnecessary prosecution of an honest drawer of the Cheque and with a view to give an
opportunity to him to make amends.

➢ Cheque ought to have been presented to the bank within a period of six months from the
date on which it was drawn or within the period of its validity, whichever is earlier.
However, the time period of six months has been reduced to three months as per the
recommendation by the Law Commission of India in its 213th Report, Fast Track
Magisterial Courts for dishonoured Cheque Cases which came in November 2008.12
In case of a post-dated Cheque, the period of validity starts from the date which has
been put on Cheque and not the date when the Cheque was delivered.
➢ A notice in terms of the provisions was served on the person sought to be made liable,
i.e., The payee or the holder in due course of the Cheque, makes a demand for the
payment of the said amount of money by giving a notice in writing, to the drawer of the
Cheque, within 30 days of the receipt of information by him from the bank regarding the
return of the Cheque as unpaid.
‘Giving the notice’ here means dispatch of notice to the drawer on his correct address.
Notice could be given by telegram or fax as well.

Case:- N. Parameswaran Unni v. G. Kannan13

The Supreme Court has held that when a notice is sent by registered post and is returned with
postal endorsement “refused” or “not available in the house” or “house locked” or “shop closed”
or “addressee not in station” or “intimation served, addressee absent”, due service of notice has
to be presumed. Even if the accused claims non-receipt of any notice, then 15 days would be
counted from the date of receipt of summons by such accused.

➢ Despite service of notice, neither any payment was made nor other obligations, if any,
were complied with, i.e., the drawer of such a Cheque fails to make payment of the said
amount of money to the payee or to the holder in due course of the Cheque within 15
days of the receipt of the said notice.

Case:- Dashrath Rupsingh Rathod v. State of Maharashtra14

In this case, it was held that Section 138 is complete with the dishonour of the Cheque but taking
cognizance of the same by any Court is forbidden so long as the complainant does not have the
cause of action to file a complaint in terms of clause (c) of the proviso to Section 138 read with
Section 142(which talks about the cognizance of offences) and the action arises on 16th day after
giving notice.

12
Tejsawi Pandit, “Dishonour of Cheque (Section 138, NI Act and allied sections)”, (2017) available at <https://
www.scconline.com/blog/post/2019/05/07/dishonour-of-cheque-s-138-ni-act-and-allied-sections/> retrieved on 7th
March at 10:19 a.m.
13
(2017) 5 SCC 737.
14
(2014) 9 SCC 129.

10
 1.6. Penalty under Section 138-
There is imprisonment for the term which may extend to 2 years for the defaulting
party or fine which may extend to twice the amount of Cheque, or both. For the
penalty to be imposed under S. 138, the three conditions given before have to be fulfilled
necessarily.

The provisions do not cover the dishonour of other negotiable instruments. However, a Pay
Order has been held to be a Cheque and dishonour of the same can attract proceedings under
Section 138 of The Negotiable Instruments Act.15

1.7. No requirement of Mens rea under Section 138

Case:- Dashrath Rupsingh Rathod v. State of Maharashtra16

The requirement of proving mens rea under Section 138 has been done away with in order to
attract liability of accused as the objective of the Parliament was to strengthen the use of
Cheques as distinct from other negotiable instruments which has been achieved by deeming the
commission of an offence dehors mens rea not only under Section 138 but also by virtue of the
succeeding two sections.17

2. PRESUMPTION IN FAVOUR OF HOLDER OF CHEQUE UNDER SECTION 139

The bare provision under Section 139 is as follows:

Section139- Presumption in favour of holder - It shall be presumed, unless the contrary is
proved, that the holder of a Cheque received the Cheque of the nature referred to in
section138 for the discharge, in whole or in part, of any debt or other liability.

Analysis of Section 139-

i) It will always be presumed that the holder must be bonafide person holding the Cheque
for any whole or partial payment of any debt or liability i.e., the former didn’t receive
Cheque by way of forgery or theft etc.
ii) Presumption prescribed here is a “rebuttable pesumption” as the provision clearly
provides that the person issuing the Cheque is at liberty to prove the contrary. The
standard of proof for doing so is that of “preponderance of probabilities”.

Case:- Hiten P. Dalal v. Badrinath Banerjee18

15
Punjab and Sind Bank v.Vinkar Sahakari Bank Ltd., A.I.R. 2002 S.C. 3641.
16
(2014) 9 SCC 129.
17
Krishnamurthi S. Aiyar, Law relating to The Negotiable Instruments Act, 439 (Universal Law Publishing Co. Pvt.
Ltd., New Delhi, 9th edn., reprint, 2006).
18
A.I.R. 2001 S.C. 3897.

11
In this case, as regards to the presumptions under The Negotiable Instruments Act, 1881, it was
observed that the effect of these presumptions is to place the evidential burden on the accused to
prove that the Cheque was not received by the complainant towards the discharge of any liability
because both the Sections 138 and 139 require that the Court shall presume the liability of the
drawer of the Cheques for the amounts for which the Cheques are drawn.

It is obligatory on the Courts to raise this presumption in every case where the factual basis for
the raising of this presumption had been established. It introduced an exception to the general
rule as to the burden of proof in criminal cases and shifts the onus on to the accused.

3. PRESUMPTION OF CONSIDERATION UNDER SECTION 118

Section 118(a) incorporates a presumption that every Negotiable Instrument is drawn or made
for consideration. Therefore, even when Cheque is drawn, it is presumed to be drawn for
consideration and the payee has not to prove that there was consideration. In the event of
dishonour of a Cheque, the drawer in order to absolve his liability has to lead cogent evidence to
prove that he had not received consideration.

Section 140 clarifies that it will not be available as a defence to the drawer that he had no reason
to believe, when he issued the Cheque, that it would be dishonoured.

OFFENCES BY COMPANIES (SECTION 141)

As per Section 141, there are three categories of persons who are brought within the purview of
the penal liability through the legal fiction envisaged in the section. They are:

i) the company which committed the offence,

ii) everyone who was in charge of and was responsible for the business of the company,
iii) any other person who is a director or a manager or a secretary or officer of the company,
with whose connivance or due to whose neglect the company has committed the offence.

However, there are two Exceptions to absolve liability under section which are as follows:-

i) the persons will not be held liable if the offence was committed without his/ her
knowledge or due diligence was exercised to prevent the commission of offence.
ii) Added by the Amendment Act, 2002, Nominated ex- officio directors of the company are
exempted from liability, i.e., who are appointed as director of the company by the virtue
of his holding any office in Central government or State government or a financial
corporation owned or controlled by the Central government or State government.

In this manner, we can see that Section 141 imposes a criminal vicarious liability on the officers
of the company who are incharge of and responsible to the company. Officers responsible for

12
conducting affairs of the company are generally referred to as Directors, Managers, Secretaries,
Managing directors etc.

Case:- Pankaj Mehta v. State of Maharashtra19

In this case, the Hon’ble Supreme Court held that a company cannot escape liability under
Section 138 on the premise that a petition for its winding up was presented prior to the notice of
dishonour of company’s Cheque was given by payee to company, it would not mean that the
company’s debt was unenforceable. In other words, the liability of the company for the
dishonoured Cheque won’t be affected by the winding up petition.

Case:- S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla and Another20

In this case, it was held that specific averments have to be made in the complaint regarding the
person accused who was responsible for the conduct of business in the company in order to make
officer vicariously liable. This averment is an essential requirement of Section 141 and has to be
made in a complaint as the Magistrate will examine the complaint in the first instance on the
basis of the averments made in complaint.

Secondly, Specific averments against the Managing Director or Joint Managing Director are not
required to be made in the complaint. By virtue of the office they hold as Managing Director or
Joint Managing Director, these persons are in charge of and responsible for the conduct of
business of the company, therefore, they get covered under Section 141. So far as the signatory
of a Cheque which is dishonoured is concerned, he is clearly responsible for the incriminating act
and will be covered under sub-section (2) of Section 141.

Case:- Ritaben Ashokbhai Shah v. Sanjay Kanubhai Seth21

Facts: In this case, wife had issued a Cheque in discharge of debt as both husband and wife had
share dealings with the complainant. The Cheque was neither signed by the wife nor the account
was in her name rather it was maintained by his husband and daughter. However, the complaint
nowhere mentioned that the husband and wife were “an association”.

Question involved: Whether husband and wife can be regarded as “an association” within the
ambit of Section 141 to make them liable for an offence committed under Section 138?

Held: The husband and wife could not be considered as “an association of individuals” within
the meaning of Section 141, hence wife could not be criminally prosecuted for an offence
committed under Section 138.22

19
A.I.R. 2000 S.C. 1953.
20
(2005) 8 SCC 89.
21
2004 Cri.L.J. 1058 (Guj.).
22
Bhashyam and Adiga, The Negotiable Instruments Act, 1118 (Bharat Law House, New Delhi, 17 th edn., reprint,
2006).

13
COGNIZANCE OF OFFENCES (SECTION 142)

Section 142 talks about the three important aspects in case of an offence committed under
Section 138, i.e., when, how and in what Forum, the cognizance of offence would be taken.

i) When and how the cognizance would be taken

• The cognizance would be taken only on a complaint filed by the payee or the holder in
due course.
• The complaint has to be filed within one month from the date when the cause of action
arises under Section 138 proviso clause(c). The cognizance may be even taken afterwards
if the complainant satisfies the Court about the delay by showing sufficient cause.
• No Court inferior to that of Metropolitan Magistrate or Judicial Magistrate of First class
can take cognizance of offence punishable under Section 138.
ii) Forum, i.e, Territorial Jurisdiction

Section 142(2) was inserted by amendment in 2015 talks about the territorial jurisdiction for trial
of case when an offence is made out under Section 138.

• If Cheque delivered for collection through an account

If the Cheque is delivered for collection through an account, the case will be tried by the Court
not inferior to that of a Metropolitan Magistrate or a Judicial Magistrate of the first class within
whose local jurisdiction the branch of the bank where the payee or holder in due course, as the
case may be, maintains the account is situated. [Section 142(2)(a)]

• If Cheque presented for payment by payee or holder in due course otherwise through
an account

In such a situation, the case will be tried by the Court not inferior to that of a Metropolitan
Magistrate or a Judicial Magistrate of the first class within whose local jurisdiction the branch of
the drawee bank where the drawer of the Cheque maintains the account is situated. [Section
142(2)(b)]

Case:- Dashrath Rupsingh Rathod v. State of Maharashtra23

Question involved: Whether complaints under Section 138 could be maintained at a place other
than the place where the drawee bank is situated?

Held: The Hon’ble Supreme Court answered in negative and observed that an offence under
Section 138 is committed no sooner the Cheque issued on an account maintained by the drawer
with a bank and representing discharge of debt or a liability in full or part is dishonoured on the
ground of insufficiency of funds or on the ground that the same exceeds the arrangements made
with the banker. Prosecution of the offender and cognizance of the commission of the offence is,
23
(2014) 9 SCC 129.

14
however, deferred by the proviso to Section 138 till such time the complainant has the cause of
action to institute such proceedings.

Furthermore, the observations can be summarized as under:

(a) Once the cause of action accrues to the complainant, the jurisdiction of the court to try the
case will be try the case will be determined by reference to the place where the Cheque is
dishonoured;

(b) Place of issuance of statutory notice, or, place of deposit of Cheque in a bank by payee, or,
place of receipt of notice (demanding payment) by accused, would not confer jurisdiction
upon courts of that place; what is important is whether drawee bank which dishonoured the
Cheque is situated within the jurisdiction of the court taking cognizance.24

POWER OF COURT TO TRY CASES SUMMARILY (SECTION 143)

The main points regarding summary trial of relating to complaint with respect to an offence
under Section 138 are as follows:

i) The offences for dishonour of a Cheque shall be tried by a Judicial Magistrate of the first
class or by a Metropolitan Magistrate.
ii) A summary trial has to be conducted as the provisions of sections 262 to 265 (both
inclusive) of the Criminal Procedure Code, 1973 will apply.
iii) In case of any conviction in a summary trial, the Magistrate may pass a sentence of
imprisonment for a term not exceeding one year and an amount of fine not exceeding
5ooo rupees.
iv) As far as practicable, the trial has to be conducted on day to day basis.
v) The trial has to be conducted expeditiously and to be concluded within six months from
the date of filing of the complaint.

Case:- Meters and Instruments (P) Ltd. v. Kanchan Mehta25

If complaint with affidavits and documents can be filed online, process issued online and the
accused pays the specified amount online, it may obviate the need for personal appearance of the
complainant or the accused. This is a matter to be considered by the High Courts and wherever
viable, appropriate directions can be issued, thus held that in some cases under Section 138,
online proceedings can be conducted.

24
Akanksha Yadav, “Position of law on Cheque bounce and punishment in India” (2020) available on <http:/
https://www.latestlaws.com/articles/section-138-ni-act-position-of-law-on-cheque-bounce-and-punishment-in-india-
by-akanksha-yadav/ > retrieved on 30th March, 2020 at 5:40 p.m.
25
(2018) 1 SCC 560.

15
POWER TO DIRECT INTERIM COMPENSATION TO COMPLAINANT (SECTION
143A)

Section 143A was inserted by The Negotiable Instruments (Amendment) Act, 2018 empowers
the Court trying an offence under Section 138-

• To order the drawer of the Cheque to pay interim compensation to the complainant which
shall not be more than 20% of the amount of the Cheque.
• It has to be paid by the drawer within a period of 60 days (extendable by 30 days) from
the date of the order directing such compensation. Such compensation may be recovered
as if it were a fine under Section 421 CrPC.
• If the drawer of the Cheque is acquitted, the complainant has to repay the amount of such
compensation received within 60 days (extendable by 30 days) from the date of the
acquittal order. The complainant has also to pay interest on such amount at the bank rate
as published by RBI prevalent at the beginning of the relevant financial year.
• Moreover, the amount of fine imposed under section 138 or the amount of compensation
awarded under section 357 of the Code of Criminal Procedure, 1973, shall be reduced by
the amount paid or recovered as interim compensation under this section.

Case:- G.J. Raja v. Tej Raj Surana26

The Hon’ble Supreme Court in this case held that Section 143A will not have a retrospective
effect as against earlier decision of Madras High Court which held the provision to have a
retrospective application or effect.

MODE OF SERVICE OF SUMMONS (SECTION 144)

• The summons may be duly served by the Magistrate to the accused or a witness at the
place where he actually resides or carries on business or personally works for gain, by
speed post or by such courier services as are approved by a Court of Session.
• If the accused or the witness refuses to take delivery, the Court issuing the summons may
declare that the summons has been duly served.

EVIDENCE ON AFFIDAVIT (SECTION 145)

As per this section, the evidence of the complainant may be given on an Affidavit and the Court
may examine any person giving evidence on affidavit for the facts stated therein.

BANK’S SLIP PRIMA FACIE EVIDENCE OF CERTAIN FACTS (SECTION 146)

26
SLP (Crl.) No.3342 of 2019.

16
This section states that on production of Bank's slip or memo having thereon the official mark
denoting that the Cheque has been dishonoured, the Court shall presume the fact of dishonour of
such Cheque, unless and until such fact is disproved.

OFFENCES TO BE COMPOUNDABLE (SECTION 147)

This section makes the offences punishable under The Negotiable Instruments Act, 1881
compoundable. In a way, it overrides the classification contained in the Criminal Procedure
Code, 1973.

Case:- Meters and Instruments (P) Ltd. v. Kanchan Mehta27

In this case, it was held that though Compounding requires consent of both parties, even in
absence of such consent, the Court, in the interests of justice, on being satisfied that the
complainant has been duly compensated, can in its discretion close the proceedings and
discharge the accused.28

POWER OF APPELLATE COURT TO ORDER PAYMENT PENDING APPEAL

AGAINST CONVICTION (SECTION148)

This section was added by The Negotiable Instruments (Amendment) Act, 2018. However, it
was held to have even retrospective effect as well.29

• The Appellate Court may order the appellant drawer to deposit a sum which shall be a
minimum of twenty per cent of the fine or compensation awarded by the trial Court. This
sum shall be in addition to any interim compensation paid by the appellant under Section
143A.
• Such sum has to be paid within 60 days (extendable by 30 days on sufficient cause shown
by Appellant) from the date of the order.
• The Appellate Court may direct the release of the amount deposited by the appellant to
the complainant at any time during the pendency of the appeal.
• In case of acquittal of the appellant, the Court shall direct the complainant to repay to the
appellant the amount so released within a period of 60 days (extendable by 30 days) with
interest at prevalent bank rate by RBI.

IMPORTANT/ RELEVANT RECENT CASE LAWS:

Case:- Indian Bank Association & others v. Union of India and ors.30

27
(2018)1 SCC 560.
28
Shyam Sunder Tak, “Dishonour of Cheque in India”, (2019), available at <http://www.legalserviceindia.com
/article/l277-Dishonour-Of-Cheque.html> retrieved on 8th March, 2020 at 06: 10 p.m.
29
S.S.Deswal and Ors.v. Virender Gandhi and Anr., Cr. Appeal Nos.1936-1963of 2019.
30
(2014) 5 SCC 590.

17
In this case, the Hon’ble Supreme Court laid guidelines for speedy disposal of cases under
Section 138 of Negotiable Instruments Act which are as:

• Metropolitan Magistrate/Judicial Magistrate (MM/JM), on the day when the complaint

under Section 138 of the Act is presented, shall scrutinize the complaint andcomlaint if
accompanied with affidavit and documents, take cognizance and direct issuance of
summons.

• MM/JM should adopt a pragmatic and realistic approach while issuing summons.
Summons must be properly addressed and sent by post as well as by e-mail address got
from the complainant. Court, in appropriate cases, may take the assistance of the police
or the nearby Court to serve notice to the accused.

• The Court may indicate in the summon that if the accused makes an application for
compounding of offences at the first hearing of the case and, if such an application is
made, Court may pass appropriate orders at the earliest.

• The Court concerned must ensure that examination-in-chief, cross- examination and re-
examination of the complainant must be conducted within three months of assigning the
case. The Court has option of accepting affidavits of the witnesses, instead of examining
them in Court.31

Case:- Makwana Mangaldas Tulsidas v. The State of Gujarat and Anr.32

The Hon’ble Supreme Court by an order dated on 9th March, 2020 in this particular case,
directed the Reserve Bank of India (RBI) to consider developing a new proforma Cheque to
include purpose of payments, along with other informations to facilitate adjudication of real
issues in Cheque bounce cases. RBI, being the regulatory body may also evolve guidelines for
banks to facilitate requisite information for the trial of these cases and such other matters as may
be required. A separate software-based mechanism may be developed to track and ensure the
service of process on the accused in cases relating to an offence under Section 138 of N.I. Act.

The Bench also observed that an information sharing mechanism may be developed where the
banks share all the requisite details available of the accused, who is the account holder, with the
complainant and the police for the purpose of execution of process. This may include a
requirement to print relevant information, viz the email id, registered mobile number and
permanent address of the account holder, on the Cheque or dishonour memo informing the
holder about the dishonour.

31
LiveLaw News Network, “S.138 NI Act: SC Directs RBI To Consider Developing A New Proforma Cheque To
Include Purpose Of Payments [Read Order]”, (2020) available at < https://www.livelaw.in/top-stories/summons-
email-cheque-bounce-cases-153632> retrieved on 30th March, 2020 at 9:52 p.m.
32
SLP (Criminal) no. 5464 of 2016.

18
 CONCLUSION

To conclude, one can say that the provisions under The Negotiable Instruments Act, 1881 is to
protect the interests or rights of the Cheque holder who receives the payment in respect of any
debt lent by him through the mode of Cheque as this instrument is the most common mode of
payment used by the parties in trade in present times. Thus, to provide a smooth mechanism and
regulation of system, amendments have been made from time to time.

The Section 138 was inserted with the objective to discourage the dishonest activity of issuing
Cheques which were later dishonoured for insufficient funds. The Act though only mentions two
causes i.e., insufficiency of funds and exceeding amount, but Courts has also considered cases
like stoppage of payment or closure of account where drawer issued Cheques which were later
dishonoured as insufficiency of funds is considered as a genus while other reasons such as
stopping payment or case of non matching of signatures are its species. The Court is now
taking mediation and other efforts like online proceedings to have speedy disposal in this modern
era. Besides the Negotiable Instrument Act, judgements given by High Courts and Supreme
Court are the law that need to be referred for bouncing of Cheques.33

33
Akanksha Yadav, “Position of law on Cheque bounce and punishment in India” (2020) available on <http:/
https://www.latestlaws.com/articles/section-138-ni-act-position-of-law-on-cheque-bounce-and-punishment-in-india-
by-akanksha-yadav/ > retrieved on 30th March, 2020 at 5:40 p.m.

19
 BIBLIOGRAPHY

1. Aiyar S. Krishnamurthi, “Law relating to The Negotiable Instruments Act”, Universal

Law Publishing Co. Pvt. Ltd., New Delhi, 9th edn., reprint, 2006.
2. Bangia R.K.,“The Negotiable Instruments Act, 1881”, Allahabad Law Agency,
Faridabad, Haryana, 12th edn., 2019.
3. Bhashyam and Adiga, “The Negotiable Instruments Act”, Bharat Law House, New Delhi,
17th edn., reprint, 2006.
4. Singh Avtar, “Business Law (Principles of Mercantile Law)”, Eastern Book Company,
Lucknow, 11th edn., 2018.

WEBLIOGRAPHY
1. Akanksha Yadav, “Position of law on Cheque bounce and punishment in India” (2020)
available on <http:/ https://www.latestlaws.com/articles/section-138-ni-act-position-of-
law-on-Cheque-bounce-and-punishment-in-india-by-akanksha-yadav/ > retrieved on 30th
March, 2020 at 5:40 p.m.
2. LiveLaw News Network, “S.138 NI Act: SC Directs RBI to Consider Developing a New
Proforma Cheque to include Purpose Of Payments [Read Order]”, (2020) available at <
https://www.livelaw.in/top-stories/summons-email-Cheque-bounce-cases-153632>
retrieved on 30th March, 2020 at 9:52 p.m.
3. Pragyaaishwaya, “Dishonour of Cheques”, (2017) available at <http://www.Legalservices
india.com/article/2 36/Dis honour-Of-Cheques.html> retrieved on 8th March, 2020 at 06:
02 p.m.
4. Tejsawi Pandit, “Dishonour of Cheque(Section 138, NI Act and allied sections)”, (2017)
available at <https://www.scconline.com/blog/post/2019/05/07/dishonour-of-Cheque-s-
138-ni-act-and-allied-sections/> retrieved on 7th March, 2020 at 10:19 a.m.
5. Shyam Sunder Tak, “Dishonour of Cheque in India”, (2019) available at <http:
//www.legalserviceindia.com/article/l277-Dishonour-Of-Cheque.html> retrieved on 8th
March, 2020 at 06: 10 p.m.

20