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Rewati Krishnan
Setindiabiz Team |LinkedIn profileUpdated : June 27, 2024

Dishonour of Cheques

Dishonour of Cheques Meaning and Judicial Remery: Dishonour of Cheques Legally, the author of the cheque is called ‘drawer’, the person in whose favor, the cheque is drawn is called ‘payee’, and the bank who is directed to pay the amount is known as ‘drawee’.

The drawer of cheque alone falls within the scope of section 138 of N.I. Act, whether human being or a body corporate or even a firm. The Banking, Public financial Institutions and Negotiable Instruments Laws (Amendment) Act,1988 (66 of 1988) has inserted chapter XVII comprising pf sections 138 to 142 w.e.f. 1 april,1989. A pay order is a cheque within the meaning of section 138 of the Act and on dishonour of a ‘Pay Order’ section 138 proceedings are competent. (Punjab and sind Bank v/s Vinkar sahakari Bank Ltd. 2002 Cri LJ 93(SC): (2001) 107 Comp cas 208 (SC).

According to section 138 of the N.I. Act, the dishonour of cheque is a criminal offence punishable by imprisonment of term up to two years, or with monetary penalty or with both. The purpose behind the incorporation of section 138 of the Act being to lend credibility for cheque transactions, for establishing the requirement of section 138, there is no burden on the complainant to prove before court the entire details of the transaction resulting in issuance of cheque.

Section 138 of the Act has three ingredients

  • That there is a legally enforceable debt.
  • That the cheque was drawn from the account of bank for discharge in whole or in part of any debt or other liability which presuppose a legally enforceable debt.
  • That the cheque so issued had been returned due to insufficiency of funds.

It is very important to examine the Section 139 of the Act as well. The said act is an example of a reverse onus clause that has been included in furtherance of the legislative objective of improving the credibility of Negotiable Instruments. The rebuttable presumption under section 139 is a device to prevent undue delay in the course of Litigation. However, it must be remembered that the offence made punishable by section 138 can be better described as a regulatory offence since the bouncing of cheque is largely the nature of a civil wrong whose impact is usually continued to the private parties involved in commercial transactions. In such a scenario, the test of proportionality should guide the construction and interpretation of reverse onus clauses and the accused/defendant cannot be expected to discharge an unduly high standard of proof.

Ingredients Of The Offence

  • Cheque should have been issued for the discharge, in whole, or in part, of any debt or other liability. (Note: The cheque may be presented any number of times.
  • The payee or the holder in due course should have issued notice in writing to the drawer within 30 days of the receipt of information by him from the bank regarding the return of the cheque as unpaid.
  • The cheque should have been presented within the period of 3 months or within the period of its validity, whichever is earlier.
  • On Non-payment of the amount due on the dishonoured cheque within 15 days of the receipt of the Notice by the drawer, the complainant can file a case, within one month from the date thereof, before M.M. or not below the rank of JM 1ST Class.
  • If the payment is made within the said notice period then no offence is committed but in case of failure the offence gets completed. Even if the payment is made on the 16th day the same is not sufficient to come out of the rigours of section 138 of the Act. In criminal law, the commission of an offence is one thing and the prosecution is quite another. Commission is governed by section 138 of the Act. Prosecution is governed by section 142 of the Act.

Important Points/judicial Pronouncement Pertaining To 138 N.i. Act

  • Where dishonour of cheque was on the ground that signature of drawer of cheque did not match specimen signature of available with the bank, even then it would attract the penal provision of section 138 of the Act. (Laxmi Dyechem V/s State of Gujarat 2013 Crl 3288 (SC))
  • The primary interest of the payee is to get his money and not prosecution of the drawer, recourse to which, normally, is taken out of compulsion and not choice. (Prem Chand vijay kumar V/s yash pal).
  • A cheque issued in illegal transaction would be invalid and illegal. (Parmesh Singh Negi V/s Ganga Singh (2013) BC)
  • In cheque dishonour cases what the courts have to consider is whether the ingredients of the offence enumerated in section 138 of the act have been met and if so, whether the accused was able to rebut the statutory presumption contemplated by section 139 of the act.
  • In Goa Plat Pvt. Ltd V/s Chico urusula D’souza, (2003) 3 SCC,232, It was held: Chapter 17 containing section 138 to 142 was introduced in the act with the object of inculcating faith in the efficacy of banking operations and giving credibility to negotiable instruments in business transactions. These provisions were intended to discourage people from not honouring their commitments by way of payment through cheques.
  • The Indian contract act is a general statue dealing with contract whereas the N.I.Act is a statue dealing with a particular form of contract, and the law laid down for special cases must always overrule the provisions of a general character. (Kwong Hiplone Saw mill Co. V/s CAMAL firm AIR 1938 Page 131).
  • A policy of Life insurance is not negotiable but it can be assigned and transferred and the assignee can sue in his own name provided the conditions prescribed in sec. 38 of the Insurance Act,1938 are complied with.