Source- Vakilno1.com
Introduction
Cheque is a financial instrument called as a ‘carrier without luggage’. It carries money of any value on a single sheet of paper. The negotiable instruments, particularly the facility of cheque has made monetary transactions very quick, convenient and safe. With the growth of trade and commerce, the increasing demands for money cannot be sufficed by mere supply of legal tender. Thus, cheques act as an alternate to the function of money to facilitate this sector.
However, the increase in dealing with cheques gives rise to the mal-practice of issuing cheques without any intention of honouring the transaction. Therefore, recognizing this imperative, to ensure promptness and easy remedy against offenders and to safeguard credibility of the holders, Parliament has enacted Negotiable Instruments Act,2002. The dishonour of cheque is now a criminal offence punishable with imprisonment up-to two years or fine of the amount double than the dishonoured cheque or both.
Types of dishonour of cheques
The dishonour of cheques is of two kinds i.e.
Dishonour of a bill of exchange due to its non-acceptance by beneficiary
Dishonour of a promissory note, a bill of exchange or a cheque due to its non-payment
When the maker, acceptor the drawee delays or fail to make timely payment or intentionally prevents presentation of an instrument, it amounts to dishonour of such instrument (cheque) even without presentment.
Notice of dishonour of Cheque
The communication of the dishonour is said to be completed as soon as the cheque is dishonoured by the bank. The notice of the dishonoured cheque is presented to the issuer who is to be held liable for it. He is also served with the warning to make him aware about the legal proceedings that might be initiated against him.
The notice of dishonour can be given by
The holder i.e. the aggrieved party itself; or
The party to the instrument who shall remain liable for it.
Circumstances of Dishonour & legal remedy
When the drawer of a cheque makes default in discharging his legally enforceable debt or any other liability towards the payee, resulting in the cheque being dishonoured due to lack of sufficient funds in the bank of the drawer, the Payee can seek a legal remedy available to him under Section 138 of the Negotiable Instruments Act.
The circumstances of dishonour include bouncing of a cheque or forging a signature on the cheque which can invite a criminal liability whereby the drawer/signatory can be subjected to a punishment of imprisonment for a term of two years, or a fine double the amount of the cheque, or both. However, the proceedings under Section 138 of Negotiable Instruments Act provide an alternate remedy to the aggrieved party. Also, they can initiate proceedings before the Civil Court for the purpose of Recovery.
Essentials for an action under Section 138 before proceeding to a Criminal Complaint:
To commit an offence under Section 138 of the Negotiable Instruments Act, the following ingredients are needed to be accomplished:
Drawing of a cheque on a bank account maintained by a person;
Issuing of the cheque for the discharge, of any debt or other liability;
Presentation of cheque to bank within the three-month time period from the date on which it is drawn;
Returning the unpaid cheque by the drawee bank, either because of insufficient amount of funds to honour the cheque or instructions of non-issuance of cheque by the Drawer bank to the Drawee Bank or in case of deliberate mismatch of signature of cheque;
Giving notice in writing to the drawer of the cheque demanding payment of the said amount of money, within 30 days of the receipt of information from the bank in relation to the return of the unpaid cheque;
Failure of the drawer to make such payment of the said amount of money to the payee within 15 days of the receipt of the notice;
Registration of a complaint before the Court of Chief Judicial Magistrate within a month of expiry date of the 15 days’ time period of receipt of the notice.
It is not important that all the above-mentioned acts should be perpetrated at same locality. However, it is necessary that the sequence of all of the above should be the same for constituting the offence under section 138 of the Negotiable Instruments Act.
The Bombay High court in the case of Rakesh Nemkumar Porwal v/s Narayan Joglekar [1] held that, ‘A simple reading of section 138 tells that the circumstances under which the dishonour of cheque takes place can be ignored to a large extent. However, the law certainly takes the cognisance of the fact that the payment has not been forthcoming and it matters that any of the manifold reasons may have caused the situation.’
PROCEDURE IN BRIEF
A legal notice shall be sent to the defaulter within a period of 30 days of receiving the cheque return memo enclosing the following information:
facts and circumstances of the case,
The nature of the transaction and the amount involved,
Date of depositing the cheque in bank,
Date of dishonour of the instrument,
In case of failure of debtor to make a fresh payment within 30 days of receiving the notice, the payee shall have the right to file a criminal complaint under section 138 of Negotiable Instruments Act,
If the bearer fails to register a complaint within this period, the suit will not be entertained by the court until a sufficient and reasonable cause for the delay is provided.
Registration of a complaint
The Complaint can be registered only in a Court whose local jurisdiction extends to the branch of bank of payee, where he deposits the cheque for payment through his account, except in case of bearer cheques, which are presented to the branch of the drawee bank and thus, the local court of that branch shall have the jurisdiction.
List of Documents
In case of filing of the complaint, the following documents are required to be submitted in Court:
Any previous agreement between complainant & accused in relation to any order placed
Invoice or bill of exchange against which the dishonoured cheque was furnished
Any other document that acts as evidence of debt or liability created
Correspondence Exchanged between the parties to the cheque in question
The actual dishonoured cheque
Bank Memo mentioning the reason for dishonour
Copy of the legal notice sent to the defaulter
Proof of dispatch of the above-mentioned legal notice
Postal Acknowledgment received from the defaulter
In case of accused:
Communication made between all the parties
Documents presenting that the accused person has no liability.
Reply to the demand notice to the drawee
The court shall issue the necessary summons after receiving the complaint, along with an affidavit and relevant documents and start the hearings. In case the defaulter is not satisfied by the decision of the proceedings, he can file an appeal to the sessions court against the judgement of the lower court within one month from the date of the passing of such judgment. The parties shall also have the option of amicable out of court settlement of the matter, as it is a compoundable offence.
Undesirability of decriminalisation of Dishonour of cheques
The objectives of Section 138 of Negotiable Instrument Act enhance the credibility of the facility of cheques. The alternative remedy of seeking recovery by initiating proceedings in Civil Court is not only time consuming but is also a costly affair as court fee payable at the time of filing of civil suits is far more than the court fee payable at the time of registering a criminal complaint.
The fear of criminal prosecution makes sure that the cheques are duly honoured by the drawer. Decriminalisation the provision would remove such fear and lower the credibility of transactions made through such instruments. It shall also discourage honest parties to use cheques as a credible mode of payment. Moreover, many payees lack awareness, or belong to an economically weaker background and may not be able to engage a lawyer or afford costly and time-consuming litigations for the recovery of their dues.
Thus, the impact of decriminalisation of this offence may adversely affect the Government’s initiative for improving business transactions and encouraging ease of doing business.
References
[1] 1994 (3) Bom CR 355
[2] ‘Dishonour of Cheque (Section 138 Negotiable Instruments Act 1881)’ https://www.indialawoffices.com/knowledge-centre/dishonor-of-cheque-section-138-negotiable-instruments-act-1881; accessed on 12 December, 2020 ; 10:40 pm
[3] ‘Dishonour of cheques in Indian law’ http://www.legalserviceindia.com/article/l277-Dishonour-Of-Cheque.html ; accessed on 13 December, 2020; 12:05 pm
[4] ‘Decriminalising the Offence Of Dishonour Of Cheque’ https://www.mondaq.com/india/financial-services/955680/decriminalising-the-offence-of-dishonour-of-cheque-why-not-desirable; accessed on 13 December, 2020; 3:15 pm