Dishonor of cheque under Negotiable Instrument Act 1881
All banks in India are being administered and their operations amended purely with the help of certain statutes, mainly by the Negotiable Instruments Act, 1881, the Reserve Bank of India Act, 1934 and the Banking Regulations Act, 1949. Now, the various matters affecting a cheque as a major negotiable instrument and the legal formalities to be fulfilled by the parties when a cheque gets bounced or is dishonoured.
A cheque as a negotiable instrument has been clearly defined under Section 6 of the negotiable instrument Act. A ‘cheque’ is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand, and it includes the electronic image of a truncated cheque and a cheque in the electronic form
Dishonor of cheque
Section 138. 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 two years, or with fine which may extend to twice the amount of the cheque, or with both:
Provided that nothing contained in this section shall apply unless —
(a) the cheque has been presented to the bank within a period of six months* from the date on which it is drawn or within the period of its validity, whichever is earlier;
(b) 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 by giving a notice in writing, to the drawer of the cheque, within thirty days of the receipt of information by him from the bank regarding the return of the cheque as unpaid; and
(c) 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.
Explanation.—For the purposes of this section, “debt or other liability” means a legally enforceable debt or other liability.
Classification of Offence
An offence committed under Section 138 is a non-cognizable offence (a case in which a police officer cannot arrest the accused without an arrest warrant). Also, it is a bailable offence.
The ingredients of the offence under Section 138 are:
(a) Cheque is drawn by the accused on an account maintained by him with a banker;
(b) The cheque amount is in discharge of a debt or liability; and
(c) The cheque is returned unpaid for insufficiency of funds or that the amount exceeds the arrangement made with the bank, the offence standing committed the moment the cheque is returned unpaid.
Further steps laid down by way of the proviso are distinct from the ingredients of the offence which the enacting provision creates and makes punishable. Thus, an offence within the contemplation of Section 138 is complete with the dishonour of the cheque but taking cognizance of the same by any court is forbidden so long as the complainant does not have the cause of action to file a complaint in terms of clause (c) of the proviso read with Section 142, Dashrath Rupsingh Rathod v. State of Maharashtra.
Conditions precedent for constituting an offence under S. 138
There are three distinct conditions precedent, which must be satisfied before the dishonour of a cheque can constitute an offence and become punishable.
(i) The cheque ought to have been presented to the bank within a period of 6 months [3 months] from the date on which it is drawn or within the period of its validity, whichever is earlier.
(ii) The payee or the holder in due course of the cheque, as the case may be, ought to make a demand for the payment of the said amount of money by giving a notice in writing, to the drawer of the cheque, within 30 days of the receipt of information by him from the bank regarding the return of the cheque as unpaid.
(iii) The drawer of such a cheque should have failed to make 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 15 days of the receipt of the said notice.
It is only upon the satisfaction of all the three conditions mentioned above and enumerated under the proviso to Section 138 as clauses (a), (b) and (c) thereof that an offence under Section 138 can be said to have been committed by the person issuing the cheque, MSR Leathers v. S. Palaniappan.
The sentence prescribed under Section 138 is up to two years or with fine which may extend to twice the amount or with both.
Reasons for Dishonour of Cheque
- Insufficient Funds
· Signature not matching
· Account Closed
· Cheque was presented after three months
· Payment stopped by account holder
· Disparity in the words and figures mentioned in the cheque
· In case of a joint account where both signatures are required but only one is there
· Death of the customer
· Insanity of the customer
· Crossing limit of the overdraft
Pre-Requisites and Documents for filing a Cheque Bounce Case:
2. Return Memo ( Bank Slip )
3. The statutory demand notice
4. Postal receipt of the notice you had issued
5. Any other document/s with the permission of Hon’ble court having the jurisdiction to try the case
6. Original copy of power of attorney, authorizing the attorney to present the complaint
Dishonour of the cheque is one of the major issues faced by the parties while transferring money through negotiable instruments. It will make the drawer liable even though he was unaware of the insufficiency of the fund in his account within a prescribed limit of time