Assignment on : Negotiable Instruments Act, 1881 on Dishonour of

Security Cheques:

Submitted by-Vikrant Singh Pathania

Course- MBA
Enrolment No-A25601921001
Negotiable Instruments Act, 1881 on Dishonour of Security
Cheques:
Cases of cheque bounce are not uncommon these days. In most of the
transactions be it re-payment of loan or payment of fees for business
purpose, payments are made by cheque. These cheques bearing large
amounts sometimes remain unpaid and are returned by the bank on
which they are drawn. For such cases punishment is provided by
Section 138 of Negotiable Instruments Act, 1881 (hereinafter the Act).
Offence of dishonour of cheque as mentioned u/s. 138 of the Act is
considered as a criminal offence.
Section 138 says: 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 extend to one year, or with fine
which may extend to twice the amount of the cheque, or with both.

Vicarious Liability of Directors And Officers on Bouncing of

Cheques:
Proper and smooth functioning of all business transactions, particularly
of cheques as instruments primarily depends upon the integrity and
honesty of the parties. Undoubtedly, dishonour of a cheque by the bank
causes incalculable loss, injury and inconvenience to the payee and the
entire credibility of the business transactions within and outside the
country suffers a serious setback. A company being an artificial person
created by law acts through its directors and officers who are
responsible for the conduct of the business of the company. A criminal
liability on account of dishonour of cheque primarily falls on the drawer
company and is extended to officers of the Company. The normal rule in
the cases involving criminal liability is against vicarious liability, that is,
no one is to be held criminally liable for an act of another. This normal
rule is, however, subject to exception on account of specific provision
being made in statutes extending liability to others. Section 141 of the
Negotiable Instrument Act,1881 ("NI Act") regulates offences by
companies.

E-Cheque System in India:

With amendments in the Sections 6 and 1(4), coupled with the
introduction of 81 A to the Negotiable Instruments Act, 1881, ECT is now
legalized. After initial implementation in the national capital region, it will
spread gradually across the country, though the stipulated deadline for
the phased commencement is December 31, 2006. In 2002, 'e' is for an
e-cheque. An electronic cheque. A cheque that never expires. A cheque
that never bounces whether because of insufficient balance in the
account or a faulty signature. A cheque the creditor doesn't have to
present physically at his bank. A cheque that enables outstation
payments to be credited to the payee's account within 2-3 days flat. A
cheque that transfers money at half the cost of a demand draft.
Counterfeit:
Rapid advances in technology and liberalisation of the Indian economy
has created an ideal market for people trying to misuse existing brand
values that have been cultivated and nurtured over a period of time.
Counterfeiting is a serious crime. The law punishes counterfeiters and
those who purchase counterfeit goods (with fines and legal actions).
Counterfeiting is often associated with money laundering and
exploitation of child labour. The first and foremost thing is know what is
counterfeit

An Analysis Of Section 138 Of The Negotiable Instruments Act:

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 honouring 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 ot 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. This article endeavours to
elucidate the penal provision light of the amendments and the judicial
interpretations.

Virtual Cheques - A Distant Reality:

It was reported in Economic Times on the 20th February 2002 that the
Reserve bank of India is setting up a task force to study and suggest an
amendment to the Negotiable Instruments Act-1881 (NI Act) to make it
feasible for issue of Negotiable Instruments on the Internet. The suitable
amendment has also been passed and the required changes were also
made under the Information Technology Act- 2000.

Stopped Payment of Cheque:

A stopped payment is usually requested if the cheque has been
declared missing or lost. But many a times the drawer, to escape his
debt or liability has used it as an instrument of deception. The 1988
amendment in Section 138 of Negotiable Instruments Act is also silent
about Stopped Payment. The present paper reviews various judgments
to see how this aspect is covered by the Courts and what tests have
been laid down to make a stopped payment order punishable under
section 138 of Negotiable Instruments Act and in that case Clause (c)
should be interpreted.
Dishonour Of Cheque:
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 dishonoured cheque or
with both.

Bank Frauds:
Fraud is any dishonest act and behaviour by which one person gains or
intends to gain advantage over another person. Fraud causes loss to the
victim directly or indirectly. Fraud has not been described or discussed
clearly in The Indian Penal Code but sections dealing with cheating.
concealment, forgery counterfeiting and breach of trust has been
discusses which leads to the act of fraud. In Contractual term as
described in the Indian Contract Act, Sec 17 suggests that a fraud
means and includes any of the acts by a party to a contract or with his
connivance or by his agents with the intention to deceive another party
or his agent or to induce him to enter in to a contract.

Bankers Right to lien and set off:

A lien is the right of a creditor in possession of goods, securities or any
other assets belonging to the debtor to retain them until the debt is
repaid, provided that there is no contract express or implied, to the
contrary. It is a right to retain possession of specific goods or securities
or other movables of which the ownership vests in some other person
and the possession can be retained till the owner discharges the debt or
obligation to the possessor.

Foreign Currency Convertible Bonds:

India is the 7th largest and 2nd most populous country in the world. It is
also the 4th largest economy in the world.[1] A series of striving
monetary reforms stimulating foreign investment has moved India firmly
into the front-runners of the rapidly emerging markets at the international
frontier. Foreign Exchange Management Act, 1999 (vFEMA), the
successor of Foreign Exchange Regulation Act, 1973 (FERA) represents
the evolution from 'regulation' to 'management' as FEMA propounds a
more positive, flexible and contemporary approach towards the market
trends. Post introduction of Foreign Exchange Management Act, 1999[2]
into the market mechanism by the Government noteworthy
developments have been brought into existence. With the opening up of
the Indian economy there has been a considerable statistical
enhancement and substantial improvement in the country's foreign
exchange reserves, constructive growth in the foreign trade, and
rationalization of various tariffs. In addition there has also been a
significant liberalization of Indian investment abroad and relaxation of
policies regulating foreign investments in India, increased access to
external commercial borrowings by Indian companies and major
participation by the foreign institutional investors in the domestic stock
markets.

Money Laundering:
In recent years, and especially since the terrorist attacks of September
11, 2001, worldwide efforts to combat money laundering and the
financing of terrorism have assumed heightened importance. Money
laundering and the financing of terrorism are global problems that not
only threaten security, but also compromise the stability, transparency
and efficiency of financial systems, thus undermining economic
prosperity
Bill of Lading:
A bill of lading serves as evidence for a contract of affreightment. This
usually arises when a ship owner, or other person authorized to act on
his behalf employs his vessel as a general ship by advertising that he is
willing to accept cargo from people for a particular voyage.

However, it must be observed that all countries do not follow the same
form of legislation globally. The broad categories may be stated as
follows:
i. The Hague Rules.
ii. The Hague/Visby amendments.
iii. The Hamburg Code.
iv. Hybrid systems based on the Hague/Visby and Hamburg regimes