DISHONOUR OF CHEQUE

Dr.Saurabh Chandra Assistant Professor SLS

NOIDA
 INGREDIENTS

The  ingredients  of   the   offence   as   contemplated

  under Sec.138 of the Act are as under:
The cheque must have been drawn for discharge of e
xisting debt or liability
Cheque must be presented within 6 months or withi
n  validity period whichever is earlier
Cheque must be returned unpaid due to insufficient
 funds  or it exceeds the amount arranged.

Dr.Saurabh Chandra Assistant Professor SLS

NOIDA
Fact of dishonour be informed to the drawer by notic
e  within 30 days
Drawer of cheque must fail to make payment within 
15   days of receipt of the notice.

Dr.Saurabh Chandra Assistant Professor SLS

NOIDA
When a cheque is dishonoured, the drawee bank
immediately issues a ‘Cheque Return Memo’ to the
banker of the payee mentioning the reason for non-
payment.
The payee’s banker then gives the dishonoured
cheque and the memo to the payee. 
The holder or payee can resubmit the cheque.

Dr.Saurabh Chandra Assistant Professor SLS

NOIDA
 PRESUMPTIONS

There is presumption under section 118 and 139 of

the Negotiable Instrument Act in favour of holder of
the cheque.
Until contrary is proved, presumption is in favour of
holder of cheque that it was drawn for dicsharge of
debt or liabilities.

Dr.Saurabh Chandra Assistant Professor SLS

NOIDA
      JURISDICTION

K. Bhaskaran vs. Shankaran  AIR 1999,
SC  3762
Had given jurisdiction to initiate the prosecution at a
any of the following places:
1. Where cheque is drawn.
2. Where payment had to be made. 
3. Where cheque is presented for payment
4. Where cheque is dishonoured. 
5. Where notice is served upto drawer

Dr.Saurabh Chandra Assistant Professor SLS

NOIDA
 One of the Courts exercising jurisdiction in one of
the five local areas can become the place of trail for
the offence under sec. 138 of the Act.
The complainant can choose any one of those courts
having jurisdiction over any one of the local areas
within the territorial limits of which any one of those
five acts was done.
the amplitude stands so widened.

Dr.Saurabh Chandra Assistant Professor SLS

NOIDA
Law related to cheque bouncing went through a
major change on 1st August 2014 (Dashrath
Rupsingh Rathod vs. State of Maharashtra;
MANU/SC/0655/2014)

Dr.Saurabh Chandra Assistant Professor SLS

NOIDA
Before this judgment the legal position was as
follows – Let us say a party X based in Mumbai
issued a cheque to a party Y of Kolkata. The cheque
was drawn on a bank of Mumbai. The cheque was
presented by Y to his bank in Kolkata.
The cheque bounced. Y issued a notice to X
demanding payment for the bounced cheque. X did
not pay.
Y would file a complaint with the Magistrate at
Kolkata

Dr.Saurabh Chandra Assistant Professor SLS

NOIDA
After the judgment dated 1st August 2014, Y had to
necessarily come to Mumbai to file the complaint.
The Supreme Court had made it mandatory that the
complaint related to cheque bouncing must be filed
only where the drawee bank is located.

Dr.Saurabh Chandra Assistant Professor SLS

NOIDA
Supreme Court’s judgment has been overturned by
the Government of India by getting the President of
India to promulgate on 15th June 2015 an
Ordinance, The Negotiable Instruments
(Amendment) Ordinance, 2015, No. 6 of 2015.

Dr.Saurabh Chandra Assistant Professor SLS

NOIDA
  Dashrath Rupsingh Rathod
vs.   State   of   Maharashtra,     MANU   /SC/   0655/   2014

Held
1) An offence under Section 138 of the  Negotiable 
Instruments Act, 1881 is committed no sooner a 
cheque 
drawn by the accused on an account being maintai
ned by  him in a bank for discharge of debt
/liability is returned  unpaid for insufficiency of 
funds or .for the reason that the  amount exceeds
 the arrangement made with the bank.

Dr.Saurabh Chandra Assistant Professor SLS

NOIDA
2.Cognizance of any such offence is however forbidden
 under Section 142 of the Act except upon a complaint
 in  writing made by the payee or holder of the cheque
 in due  course within a period of one month from the 
date the  cause of action accrues to such  payee .

Dr.Saurabh Chandra Assistant Professor SLS

NOIDA
3) the cause of action to file a complaint accrues to a
complainant / payee/ holder of a cheque in due course if
(a) the dischonoured cheque is presented to the drawee
bank within a period of six months from the date of its
issue.
(b) if the complainant has demanded payment of cheque
amount within 30 days of receipt of information by him
from the bank regarding the dishonour of the cheue
(c ) if the drawer has failed to pay the cheque amount
within 15 days of receipt of such notice.

Dr.Saurabh Chandra Assistant Professor SLS

NOIDA
4) The facts constituting cause of action do not
constitute the ingriedint of the offence under section
138 of the Act.
5) once the cause of action accrues to the complainant,
the jurisdiction of the Court to try the case will be
determined by reference to the place the cheque is
dishonoured.

Dr.Saurabh Chandra Assistant Professor SLS

NOIDA
 NOTICE

Notice must be in writing informing that cheque is

returned unpaid also a demand of cheque amount
must be made and it should be within 30 days from
receipt of information of dishonour.
Once notice is served and amount is not paid within
stipulated period, the cause of action to prosecute
starts.
There after complaint is filed.

Dr.Saurabh Chandra Assistant Professor SLS

NOIDA
When notice by registered post returned unclaimed
there is presumption of service:
Rahul vs. Arihant Fertilizers 2008(4) Mh.L.J. 365
(SC)
. K. Bhaskaran vs. Shankaran Vidhyabalan 1999
AIR SCW, 3809

Dr.Saurabh Chandra Assistant Professor SLS

NOIDA
 Object of Notice

Notice of dishonour is necessary to inform the

prior parties liable on the instrument about
liability which accrues as a result of dishonour of
the instrument.
If he does not give notice of dishonor of the bill or
cheque, except when the notice of dishonor is
excused, all the parties liable thereon are
discharged of their liability.

Dr.Saurabh Chandra Assistant Professor SLS

NOIDA
 Form of Notice

Notice of dishonour may be oral or written.

When written, it may be sent by post.
It must be given within reasonable time at the place
of business or residence (if there is no place of
business) to the party for whom it is intended.
Whatever be the form of giving notice of dishonor of
the bill, it must clearly indicate that the bill has been
dishonored.

Dr.Saurabh Chandra Assistant Professor SLS

NOIDA
Notice must be given within a reasonable time.
What is a reasonable time depends on nature of
instrument and usual course of dealing with respect
to similar instruments.
Public holidays are to be excluded in calculating
time.

Dr.Saurabh Chandra Assistant Professor SLS

NOIDA
Notice of dishonour is not necessary in the following circumstances

When it is dispensed with by the party entitled

thereto.
In case of a promissory note which is not negotiable.
To charge the drawer when drawer and acceptor are
the same person.

Dr.Saurabh Chandra Assistant Professor SLS

NOIDA
Notice of dishonour is not necessary in the following circumstances

When the party entitled to notice , promises

unconditionally to pay the amount due on the
instrument.

Dr.Saurabh Chandra Assistant Professor SLS

NOIDA
 Duties of the holder upon dishonour

The holder must give notice of dishonour to all prior

parties who are liable to pay.
Upon dishonour of the instrument, the holder may
get the fact of dishonour noted and protested by the
Notary Public.
After the formality of noting and protesting, the last
option available to the holder is to file suit for the
amount due against the parties liable for payment.

Dr.Saurabh Chandra Assistant Professor SLS

NOIDA
 NOTING AND PROTESTINSG

NOTING
When a Negotiable instrument is dishonored the
holder mat sue parties.
The holder need evidence of the fact that a
negotiable instrument has been dishonoured.
Such mode is by noting the instrument.
Noting is minute recorded by a notary public on the
dishonoured instrument or on a paper attached to
such instrument.

Dr.Saurabh Chandra Assistant Professor SLS

NOIDA
Noting should be made by the notary within a
reasonable time after dishonour.
Noting and protest are not compulsory.

Dr.Saurabh Chandra Assistant Professor SLS

NOIDA
 Protest

When a promissory note or bill of exchange has been

dishonored by non-acceptance or non-payment., the
holder may within a reasonable time, cause such
dishonor to be noted and certified by a Notary
Public.
Such certificate is called protest.
It is a formal notarial certificate attesting the
dishonour of a bill or note.

Dr.Saurabh Chandra Assistant Professor SLS

NOIDA
After noting the next step for notary is to draw a
certificate of protest, which is a formal declaration
on the bill or a copy thereof.
Advantage is that the court on proof of the protest
shall presume the fact of dishonour.
Inland Bills may or may not be protested.
Foreign Bills must be protested for dishonour
(Sec.104)

Dr.Saurabh Chandra Assistant Professor SLS

NOIDA
 Protest

A protest must contain the following particulars:

i)the instrument or literal transcript of the same;
ii) the name of the person for whom or against whom
the instrument is protested;
iii) the fact of dishonour;
iv) place and time of dishonour;
v) signature of the Notary Public;
vi) in case of acceptance/payment for honour, name of
the person accepting or paying and the name of the
person for whom it is paid or accepted.
Dr.Saurabh Chandra Assistant Professor SLS
NOIDA
 WHO  CAN  FILE  COMPLAINT

Payee or holder in due course is a competent person 
to file complaint.
A complaint which is made in the name and behalf of
the company can be made by any officer of that
Company.
Complaint can be filed by Power of Attorney Holder.

Dr.Saurabh Chandra Assistant Professor SLS

NOIDA
 Rules as to Compensation

Compensation to holder:
The holder is entitled to receive –
i)the amount due on the instrument,
ii) expenses incurred in presenting, noting and
protesting the instrument

Dr.Saurabh Chandra Assistant Professor SLS

NOIDA
 Rules as to Compensation

Re-exchange:
Where the person charged resides in a country
different from that in which the instrument was
payable, the holder is entitled to receive the
compensation at current rate of exchange between
two countries on the date of dishonour.

Dr.Saurabh Chandra Assistant Professor SLS

NOIDA
 Rules as to Compensation

D) Re-draft:
The party entitled to compensation may draw a bill
for the amount due along with expenses incurred
thereon.
Such a bill is called ‘redraft.

Dr.Saurabh Chandra Assistant Professor SLS

NOIDA
 LIABILITY OF DIRECTORS / PARTNERS

Section 141 of Negotiable Instrument Act provides

that person who is in in charge or responsible to the
company.
Section 141 of Negotiable Instruments Act shows
that person who is in charge or responsible to the
company is ip so facto liable and deemed to be
guilty.
Only if offence is committed with his consent
connivance or due to any neglect on his part.

Dr.Saurabh Chandra Assistant Professor SLS

NOIDA
If such person shows that offence was committed
without his knowledge or that he had exercised on
due diligence to prevent the commission of such
offence, he may be immune from prosecution.
It is primary duty of the Magistrate to find out
whether the complainant has shown that accused
persons falls into one of the categories of persons
envisaged in sec. 141.

Dr.Saurabh Chandra Assistant Professor SLS

NOIDA
What is required is the specific accusation against
each Director of the role played by him.
Onus is on the complainant to make out prima facie
case i.e. to show that accused was at the time of
commission of the offence, in charge of and
responsible to the company.

Dr.Saurabh Chandra Assistant Professor SLS

NOIDA
 Cause of action

Cause of action arises when notice is served on the

drawer and drawer fails to make payment of the
amount of cheque within 15 days.
Limitation to file complaint is one month from the
date of cause of action.
By Amendment Act of 2002 court is empowered to
take cognizance of the offence even if complaint is
filed beyond one month by condoning the delay if
sufficient cause is shown.

Dr.Saurabh Chandra Assistant Professor SLS

NOIDA
 141. Offences by companies

Every person who at the time the offence was

committed is in charge of and responsible to the
Company shall be deemed to be guilty of the offence
under Section 138 of the Act.
In the face of it, will it be necessary to specifically
state in the complaint that the person accused was in
charge of and responsible for the conduct of the
business of the Company.

Dr.Saurabh Chandra Assistant Professor SLS

NOIDA
To bring its Directors within the mischief of Section
138 of the Act, it shall be necessary to allege that they
were in charge of and responsible to the conduct of
the business of the Company .

Dr.Saurabh Chandra Assistant Professor SLS

NOIDA
 PUNISHMENT

The imprisonment that may be imposed may extend

to two years, while fine may extend to twice the
amount of cheque.
However, the trial is conducted in summary way,
then Magistrate can pass sentence of imprisonment
not exceeding one year and amount of fine exceeding
Rs.5,000/.
There is no limitation for awarding compensation.

Dr.Saurabh Chandra Assistant Professor SLS

NOIDA
 PROCEDURE

Complaint in writing by payee or holder in due

course.
Complaint may be instituted by Power of Attorney
Holder.
However, if the holder of the Power of Attorney has
merely lodged the complaint without being aware of
the facts, then recording the statement of the payee
becomes imperative.

Dr.Saurabh Chandra Assistant Professor SLS

NOIDA
A legal notice on behalf of payee is issued to the
defaulter, within 30 days of dishonor of cheque, by
registered post acknowledgement due.
All facts including the nature of transaction, amount
of loan and or any other legally enforceable debt
against which the said cheque was issued and the
date of deposit in bank and date of dishonor of
cheque should be mentioned in the notice

Dr.Saurabh Chandra Assistant Professor SLS

NOIDA
The person who has issued cheque is directed,
through the notice as mentioned under , to make the
payment of amount of dishonored cheque within 15
days.
In case, the said payment is made within 15 days of
service of notice, the matter ends.

Dr.Saurabh Chandra Assistant Professor SLS

NOIDA
In case, the said payment is not made within 15 days,
the holder of cheque should file a criminal case in a
court within 30 days from the expiry of notice period
of 15 days..

Dr.Saurabh Chandra Assistant Professor SLS

NOIDA
Complaint to be accompanied with affidavit and
relevant documents in original.
 The court will hear complainant / advocate of
complainant and issue summons under section 138
of NI Act

Dr.Saurabh Chandra Assistant Professor SLS

NOIDA
Once Magistrate is satisfied that there is proper
compliance of the proviso to Sec.138 N. I. Act and
jurisdictional conditions are fulfilled, Magistrate
shall issue the process.
Service of summons by speed post or approved
courier is recognized by Sec. 144 of N. I. Act.
If the accused does not appear in response to the
summons or remain absent subsequent, a coercive
process needs to be taken by the court.

Dr.Saurabh Chandra Assistant Professor SLS

NOIDA
Section 145 (1) of the Act permits the recording of
evidence of complainant on affidavit.
Even evidence of accused and witnesses can be
recorded on affidavit.
This was for expedite disposal of the cases.
The bank slips are held as a primary evidence and
admissible directly.
The accused are given effective opportunity to
defend the case.

Dr.Saurabh Chandra Assistant Professor SLS

NOIDA
Statement of accused is recorded.
Witnesses of accused to prove his innocence will be
produced and the evidence will be recorded by the
court.
 Last stage is of arguments of advocates of the
complainant and of the accused.
 After hearing final arguments, court will pass the
judgment.
In case the accused is acquitted, the matter ends.

Dr.Saurabh Chandra Assistant Professor SLS

NOIDA
The convict may appeal to Sessions Court within one
month from the date of judgment of lower court.

Dr.Saurabh Chandra Assistant Professor SLS

NOIDA
 List of Documents to be submitted in Court with Complaint
(Original)

Any agreement / contract between complainant &

accused including order(s) placed (if any)
 Invoice / Bill against which dishonored cheque was
issued Delivery challan and acknowledgement, if
any, of goods received by the accused (In case of
contracts involving supply of goods).

Dr.Saurabh Chandra Assistant Professor SLS

NOIDA
Any other document that is evidence of creation of
debt or liability.
Dishonored Cheque Bank Memo stating reason for
dishonor of cheque.
 Copy of the legal notice sent to the accused.
 Proof of dispatch of the above legal notice.
Postal Acknowledgment received from the accused.

Dr.Saurabh Chandra Assistant Professor SLS

NOIDA
For filing of a complaint points to be considered

Complaint in writing should be filed by payee.

In case of a company, a person duly authorized in a
meeting of Board of Directors of the Company
should file the complaint.
 It is advised that a copy of the Board Resolution
should be filed with the court along with the
complaint.

Dr.Saurabh Chandra Assistant Professor SLS

NOIDA
Complaint to be filed before Judicial Magistrate of
the first class or before a Metropolitan Magistrate.
In most district courts, there are designated
magistrates to deal with NI Act cases.

Dr.Saurabh Chandra Assistant Professor SLS

NOIDA
 PROCEDURE

Court may indicate in the summons 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.
Court should direct the accused, when he appears to
furnish a bail bond, the ensure his appearance
during trial.

Dr.Saurabh Chandra Assistant Professor SLS

NOIDA
 PROCEDURE

The court concerned must ensure that examination-

in-chief, Cross-examination and re-examination of
the complainant must be conducted within tree
months of assigning the case.
 The court has option of accepting affidavits of the
witnesses, instead of examining them in Court.
Witnesses to the complainant and accused must be
available for cross-examination as and when there is
direction to this effect by the Court.

Dr.Saurabh Chandra Assistant Professor SLS

NOIDA
Dr.Saurabh Chandra Assistant Professor SLS
NOIDA