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Dishonour Of Cheque

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                <p><strong>INTRODUCTION</strong></p>
<p>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.</p>
<p><strong>Section 138 of the Negotiable Instruments Act,
1881:</strong></p>
<p><em>"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 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
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:</em></p>
<p><em> Provided that nothing contained in the section shall apply
unless—</em></p>
<p><em>(a) </em><em>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;</em></p>
<p><em>(b) </em><em>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</em></p>
<p><em>(c) </em><em>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.</em></p>
<p><em>Explanation.—For the purpose of this section, "debt or other
liability" mean a legally enforceable debt or other liability"</em></p>
<p><strong>DISHONOUR OF CHEQUES:</strong></p>
<p>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:</p>
<p>"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."</p>
<p>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.</p>
<p>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".</p>
<p>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.</p>
<p>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.</p>
<p>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.</p>
<p>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.</p>
<p>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.</p>
<p>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.</p>
<p>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.</p>
<p><strong>OBJECTS, REASONS AND SCOPE;</strong></p>
<p>The provisions have also been made that to constitute the said
offence—</p>
<ol>
<li>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</li>
<li>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.</li>
<li>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.</li>
</ol>
<p>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.</p>
<p>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.</p>
<p>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.</p>
<p>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.</p>
<p>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.</p>
<p>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.</p>
<p>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.</p>
<p>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.</p>
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<p><strong>POINTS TO PROVE THE DISHONOUR:</strong></p>
<p>To make a person liable for the offence as under the section, the
following points required to be proved.</p>
<p>(1)Â Â Â Â Â Â 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.</p>
<p>(2)Â Â Â Â Â Â The cheque so dishonoured was paid for the discharge,
in whole or in part, of any debt or other liability.</p>
<p>(3)Â Â Â Â Â Â 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.</p>
<p>(4)Â Â Â Â Â Â 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.</p>
<p>(5)Â Â Â Â Â Â 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.</p>
<p>(6)Â Â Â Â Â Â 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.</p>
<p>(7)Â Â Â Â Â Â 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.</p>
<p>(8)Â Â Â Â Â Â 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.</p>
<p>(9)Â Â Â Â Â Â 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.</p>
<p>(10)Â Â Â Such complaint should have been made be the payee or the
holdr in due course, only in  writing.</p>
<p>(11)Â Â Â The complaint should have been filed before at least the
Metropolitan Magistrate or a Judicial Magistrate of the First class.</p>
<p><strong>SIGNIFICANCE OF SECTION 138:</strong></p>
<p>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.</p>
<p>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:</p>
<p>(1)Â Â Â Â Â Â the cheque should have been issued in discharge of a
legally enforceable debt or liability;</p>
<p>(2)Â Â Â Â Â Â the cheque should have been presented within a period
of its validity;</p>
<p>(3)Â Â Â Â Â Â the cheque should have been dishonoured for want of
funds in the account of the drawer;</p>
<p>(4)Â Â Â Â Â Â 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;</p>
<p>(5)Â Â Â Â Â Â the drawer must have failed to make payment within 15
days of receipt of the notice.</p>
<p>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.</p>
<p>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.</p>
<p><strong>INTERPRETATION OF CHAPTER AND SECTION 138:</strong></p>
<p>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.</p>
<p>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.</p>
<p>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.</p>
<p><strong>PROSECUTION OF THE DRAWER OF THE CHEQUE:</strong></p>
<p>The drawer of a dishonoured cheque can be fastened with criminal
liability on the following conditions precedent being satisfied:</p>
<p>(1)Â Â Â 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.</p>
<p>(a)Â Â Â 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.</p>
<p>(b)Â Â 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.</p>
<p>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.</p>
<p>(c)Â Â Â 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
time-barred debt without any acknowledgement, which could extend the
limitation, is not legally enforceable and no complaint can lie on the
same.</p>
<p>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.</p>
<p>(d)Â Â 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.</p>
<p>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.</p>
<p>(e)Â Â Â 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.</p>
<p>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.</p>
<p>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.</p>
<p>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, being that of a ‘prudent man'.</p>
<p>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.</p>
<p>(f)Â Â Â 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.</p>
<p>The Supreme Court in Hiten P Dalal v. Bratindranath Banerjee, held
that the 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.</p>
<p>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.</p>
<p>(2)Â Â Â 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.</p>
<p>(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 they 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.</p>
<p>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.</p>
<p>(b)Â Â 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.</p>
<p>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.</p>
<p>(c)Â Â Â 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.</p>
<p>(d)Â Â 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.</p>
<p>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.</p>
<p>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.</p>
<p>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.</p>
<p>(3)Â Â Â 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.</p>
<p>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.</p>
<p>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.</p>
<p>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.</p>
<p>(4)Â Â Â 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.</p>
<p>(a)Â Â Â Intimation from the bank: the bank referred to in clause
presumably means the drawee-bank, 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.</p>
<p>(b)Â Â 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.</p>
<p>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.</p>
<p><strong>CONCLUSION:</strong></p>
<p>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.</p>

<p>[1] Act of 1998</p>
<p>[2] interpretation which furthers the objects and purpose of the
statute</p>
<p>[3] (1996) 86 Comp. Cas 471</p>
<p>[4] (2000) 98 Comp Cas 296</p>
<p>[5] (2001) 107 Comp Cas 22</p>
<p>[6] (2000) 98 Comp Cas 229</p>
<p>[7] (2001) 106 Comp Cas 574</p>
<p>[8] (1996) 85 Comp Cas 764</p>
<p>[9] (1996) 86 Comp Cas 167</p>
<p>[10] (1992) 73 Comp Cas 716</p>
<p>[11] (1996) 85 Comp Cas 9</p>
<p>[12] (1995) 84 Comp Cas 446</p>
<p>[13] (1994) 81 Comp Cas 34</p>    <!--INFOLINKS_OFF-->
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