NEGOTIABLE INSTRUMENT ACT (SECTION 138)

MEANING

Negotiable Instruments have been used in commercial world for a long period of time as one of the convenient modes for transferring money. Before 1988 there was no effective legal provision to restrain people from issuing cheques without having sufficient funds in their account or any stringent provision to punish them. Of course, on dishonor of cheques, a civil liability accrued. With a view to protect drawee of the cheque need was felt that dishonor of cheque be made punishable offence. With that purpose Sec.138 to 142 were inserted by Banking, Public Financial Institutions and Negotiable Instruments Laws (Amendment) Act, 1988. This was done by making the drawer liable for penalties in case of bouncing of the cheque due to insufficiency of funds with adequate safeguards to prevent harassment of the honest drawer.However, in due course it was observed that the courts were unable to dispose of the cases expeditiously and in time bound manner. The loop holes were rectified by the amendment of the year 2002 and hence, the Negotiable Instruments (Amendment and Miscellaneous provisions) Act, 2002 was passed. The provisions of sec.143 to 147 were newly inserted and provisions of section 138, 141, 142 were amended.

 

Objective

The object of this amendment Act was a) to regulate the growing business, trade, commerce and Industrial activities. b) To promote greater vigilance in financial matters. c) To safeguard the faith of creditors in drawer of cheque. The Hon’ble Supreme Court in the matter of Modi Cements Ltd. v. Kuchil Kumar Nandi, (1998) 3 SCC 249, observed that “The object of Chapter XVII, containing Sections 138 to 142, is to promote the efficacy of banking operations and to ensure credibility in transacting business through cheques.”

Ingredients

The essential ingredients of the offence as contemplated under Sec.138 of the Act were pointed out by Supreme Court in the matter of Kusum Ingots and Alloys Ltd vs Pennar Peterson Securities Ltd, (2000) 2 SCC 745 which reads as follows:

“(i) a person must have drawn a cheque on an account maintained by him in a bank for payment of a certain amount of money to another person from out of that account for the discharge of any debt or other liability;

(ii) that 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.

(iii) that cheque is returned by the bank unpaid. either because of the amount of money standing to the credit of the 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 the bank;

(iv) the payee or the holder in due course of the cheque 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 30 days of the receipt of information by him from the bank regarding the return of the cheque as unpaid;

(v) the drawer of such cheque fails to make payment of the said amount of money to the payee or the holder in due course of the cheque within 15 days of the receipt of the said notice.

 

Jurisdiction

Considering the ingredients of sec.138 referred above, the Hon’ble Supreme Court in case of K. Bhaskaran vs. Shankaran, had held that any of the following places have the jurisdiction to initiate the prosecution –

1. Where cheque is drawn.

2. Where payment had to be made.

3. Where cheque is presented for payment

4. Where cheque is dishonored.

5. Where notice is served up to drawer.

 

Recent Development

The Central Government through The Negotiable Instrument (Amendment) Act, 2018 has notified amendments to the NI Act by incorporating several new provisions which came into effect from September 1, 2018. The provisions now allows the Court trying an offence related to cheque bouncing, to direct the drawer to pay interim compensation not exceeding 20% of the cheque amount to the complainant within 60 days of the trial court’s order to pay such compensation. This interim compensation may be paid either in a summary trial or in a summons case where the drawer pleads ‘not guilty’ to the accusation made in the complaint; or upon framing of charge in any other case.

Our View

The amendments to the Act are a great effort aimed at strengthening efficacy and expediency. It will help in speedy disposal of cases and also discourage the frivolous and unnecessary litigation. Further, it upholds the interests of the complainant by providing interim compensation and ordering payment by the accused in case of appeal against conviction.

 

Prashant Tyagi (INTERN)

LEXIS & COMPANY

05/06/2021

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