Dishonour of Cheques under Negotiable Instruments Act,1881

Banking Law rimester !I

Submitted To: Dr. Monica Raje N.L.I.U., Bhopal

Table of Contents

Sl.No. 1. 2. 3. 4. ".

Topic Introduction Scope Requirement of Provision Effects of is!onor of C!eque Punis!ment of #ffence

Page no. 2 3 3 4 "

$. '. +. -.

%ud&ments Case (nal)sis u*s 13+ Conclusion .iblio&rap!)

" + 1, 11

Pa&e / 1

Introduction
ealin&s in c!eque are vital and important not onl) for ban0in& purposes but also for t!e commerce and industr) and t!e econom) of t!e countr). .ut pursuant to t!e rise in dealin&s 1it! t!e c!eques also &ives rise to t!e practise of &ivin& c!eques 1it!out an) intention of !onourin& t!em. C!eques are also ver) convenient instruments 1!ic! can be issued to settle pa)ments or obli&ations in a contractor even to &ive &ifts. .efore 1-++ t!ere bein& no effective le&al provision to restrain people from issuin& c!eques 1it!out !avin& sufficient funds in t!eir account or an) strin&ent provision to punis! t!em2 in event of suc! c!eques bein& dis!onoured b) t!e ban0ers or returned unpaid. Sections 13+ to 142 are incorporated in 3e&otiable Instruments (ct2 1++1 43I (ct5 1it! a vie1 to encoura&e t!e culture of use of c!eques and en!ancin& t!e credibilit) of t!e instrument.

T!e 3e&otiable Instruments (ct2 1++1 1as amended b) t!e .an0in&2 Public 6inancial Institutions and 3e&otiable Instruments 7a1s 4(mendment5 (ct2 1-++ to insert a ne1 C!apter 89II 1it! Sections 13+ to 142. T!ese ne1 sections came into force 1.e.f. ,1:,4: 1-+-. T!e (ct 1as furt!er amended in 2,,2 b) insertin& Sections 143 to 14' 1.e.f. ,$: ,2:2,,3 to deal 1it! certain deficiencies noticed in t!e (ct. Salient features of amendment are acceptance of .an0ers memo of dis!onour as prima facie evidence2 evidence of 1itness or accused on affidavit2 servin& of summons b) post*courier for speed) trial*prosecution2 increase of period for issuance of notice b) pa)ee and en!ancin& of punis!ment. T!us t!e main t!rust of t!e amendment is to provide for a speed) and time bound trial2 punis!ment of 2 )ears and double t!e amount of t!e c!eque as fine. (not!er notable feature is t!at it provides for compoundin& of t!e offence. T!e 3I (ct ma0es t!e dra1er of c!eque liable for penalties in case of dis!onour of c!eques due to insufficienc) of funds or for t!e reason t!at it e;ceeds t!e arran&ements made b) t!e dra1er. T!e 3I (ct also contains sufficient safe&uards to protect t!e dra1er of c!eques b) &ivin& !im an opportunit) to ma0e &ood t!e pa)ment of dis!onoured c!eque 1!en a demand is made b) t!e pa)ee.

Pa&e / 2

Scope
#f t!e ten sections comprisin& t!e c!apter of t!e (ct2 Section 13+ creates statutor) offence in t!e matter of dis!onour of c!eques on t!e &round of insufficienc) of funds in t!e account maintained b) a person 1it! t!e ban0er. Section 13+ of t!e (ct can be said to be fallin& eit!er in t!e acts 1!ic! are not criminal in real sense2 but are acts 1!ic! in public interest are pro!ibited under t!e penalt) or t!ose 1!ere alt!ou&! t!e proceedin& ma) be in criminal form2 t!e) are reall) onl) a summar) mode of enforcin& a civil ri&!t. T!e le&islature can al1a)s create an offence of absolute liabilit) or strict liabilit) 1!ere <mens rea= is not at all necessar). T!e creation of strict liabilit) is an effective measure b) encoura&in& &reater vi&ilance to prevent usual callous or ot!er1ise attitude of t!e

dra1ers of c!eques in disc!ar&e of debts.

Requirements of t!e provision

Section 13+ of t!e 3I (ct provides t!at> #ffence under t!is section s!all be deemed to !ave been committed2 if t!e follo1in& conditions are satisfied> a5 C!eque must !ave been dra1n b) a person 4t!e dra1er5 in favour of a pa)ee on !is ban0 account for ma0in& pa)ment b5 Suc! pa)ment must be eit!er in 1!ole or partial disc!ar&e of a le&all) enforceable debt. c5 C!eque must !ave been returned b) t!e .an0er to t!e pa)ee or !older in due course due to insufficient balance in t!e account of t!e dra1er or it e;ceeds t!e arran&ement !e !ad 1it! t!e ban02 Proviso requires fulfilment follo1in& additional conditions> a5 C!eque must be presented 1it!in a period of $ mont!s from t!e date of c!eque or its validit) period 1!ic!ever is earlier.

Pa&e / 3 b5 T!e pa)ee or !older in due course must demand from dra1er2 b) 1a) of 1ritten notice2 t!e pa)ment of t!e c!eque amount 1it!in 3, da)s of receipt of intimation of dis!onour from ban0 and2 c5 T!e dra1er of c!eque must fail to pa) demanded sum 1it!in 1" da)s from t!e date of receipt of t!e notice. T!us t!e follo1in& ma) be said to be t!e conditions t!at must be satisfied for attractin& t!e provisions of Section 13+>
1

E;istence of a live account. Issue of c!eque must be in disc!ar&e of a debt or liabilit). Presentation of c!eque s!ould be 1it!in period of its validit). Return of c!eque unpaid for t!e t1o reasons &iven u*s 13+. Issue of notice 41ritten5 of dis!onour demandin& pa)ment 1it!in t!irt) da)s of receipt of information as to dis!onour of c!eque. 6ailure of t!e dra1er to ma0e pa)ment 1it!in fifteen da)s of receipt of pa)ment.

Effects of is!onour of C!eque

( dis!onor of c!eque ma) lead to t!e follo1in&> 1. Ta0in& of le&al action: T!e pa)ee*!older can ta0e action a&ainst t!e dra1er of suc! a bill ? ma) ta0e action on t!e e;act time of dis!onourin& of t!e bill. T!us t!e !older need not 1ait for t!e bill to mature and t!en to ta0e action for dis!onourin& t!e same. 2. @!en a c!eque is said to be dis!onoured it loses its basic c!aracteristic of ne&otiabilit) 1it! immediate effect.

9ide 2,,2 amendment

Pa &e / 4 3. #n dis!onourin& of a c!eque2 not!in& prevents t!e !older t!ereof to present it a&ain particularl) on bein& as0ed b) t!e dra1er of t!e c!eque. 4. Aere dis!onourin& of c!eques does not &ive rise to a cause of action in favour of t!e

complainant2 but it accrues onl) after t!e issue of demand notice and failure of t!e dra1er to ma0e t!e pa)ment.

Punis!ment for offence

T!e punis!ment provided for t!e offence u*s 13+ is imprisonment for a term 1!ic! ma) e;tend to a ma;imum period of 2 )ears or 1it! a fine 1!ic! ma) e;tend to a ma;imum of t1ice t!e amount of t!e c!eque or 1it! bot!.
2

%ud&ments
Post dated cheque and its dishonour Ever) c!eque s!all be presumed to be dra1n on t!e date mentioned on t!e face of t!e c!eque. ( post dated c!eque is a bill of e;c!an&e 1!en it is 1ritten or dra1n and it is not pa)able on demand until t!e date s!o1n on t!e c!eque. If post dated c!eque is dis!onoured because of its presentation before it became pa)able on demand2 no offence u*s 13+ can be alle&ed. T!e controvers) 1as settled b) t!e decision of t!e Supreme Court in Anil Kumar Sawhney v. Gulshan Rai . In t!is case Supreme Court !eld t!at a post:dated c!eque is a bill of e;c!an&e and it becomes a c!eque under t!e 3I act onl) on t!e date 1!ic! is 1ritten on t!e said c!eque and period of si; mont!s !as to be rec0oned from t!e date of t!e c!eque. Jurisdiction T!e (ct is silent about t!e place 1!ere criminal complaint can be filed under t!e 3I (ct. Since t!e Criminal courts are approac!ed2 t!e issue needs to be e;amined from t!e point of vie1 of t!e Criminal Procedure Code. Section 1'' of CrPC provides t!at ever) offence s!all ordinaril) be inquired into and tried b) a Court 1it!in 1!ose local Burisdiction it 1as committed. Section1'+ provides t!at offence ma) be tried at b) a court !avin& Burisdiction
2 3

9ide 2,,2 amendment 41--35 4 SCC 424

Pa

&e / " over an) of t!e local areas 1!ere offence is committed. It is possible t!at an offence ma) be committed in several local areas or partl) in one area and partl) in anot!er area. It is also possible t!at some times offence ma) consist of several acts done in different areas. In all t!e above situations2 t!e court !avin& Burisdiction over an) of suc! local areas ma) tr) t!e offence. T!e Bud&ment of SC in K Bhaskaran v. Sankaran Vaidyaa Balan & Anr
4

dealt 1it! t!is issue elaboratel). T!e Con=ble Supreme court opined t!at offence can be completed onl) 1it! lin0in& of a number of acts2 namel)2 dra1in& of c!eque2 presentation of c!eque2 returnin& of t!e c!eque b) t!e ban02 notice b) pa)ee and failure of dra1er of c!eque 1it!in 1" da)s of receipt of notice. (n)one of t!e courts under 1!ose Burisdiction t!e above acts !ave ta0en place can tr) t!e offence. In ot!er 1ords complainant can file complaint in an) one of t!e courts 1!ere t!e cause of arises or acts !ave been committed. Successive presentation of cheque and Cause of action Dsuall) 1!en a c!eque is dis!onoured2 t!e dra1er is informed and sometimes !e advises to present t!e c!eque a&ain as in t!e mean time !e must !ave arran&ed for funds or some credits !ave come into !is accounts Bust after dis!onour or made arran&ement 1it! !is ban0ers. @!at ris0 1ould t!ere be in suc! cases. In Sadanandan Bhadrant v. Madhavan Sunil Kumar
5

Supreme court ruled t!at a c!eque can be presented an) number of times durin& its validit) period b) t!e pa)ee. Co1ever on eac! presentation of t!e c!eque and its dis!onour2 a fres! ri&!t accrues in !is favour and not cause of action to file complaint. #nce !e c!ooses to &ive a notice u*s13+4b5 and t!e dra1er fails to pa) 1it!in t!e stipulated time2 t!e cause of action for filin& t!e complaint 1ill arise immediatel) on t!e follo1in& da) of e;pir) of 1" da)s notice period and remains alive till 3, da)s. Complaint !as to be filed before e;pir) of 3, da)s from t!e date of e;pir) of notice period. If a complaint is filed before e;pir) of 1" da)s notice period2 it becomes a premature complaint and it 1ill be dismissed. If complaint is filed after e;pir) of 3, da)s complaint 1ill be dismissed on t!e &round of limitation. So one !as to be clear about cause of action and filin& of complaint before t!e limitation period runs out.

4 "

41---5 ' SCC "1, (IR 1--+ SC 3,43

Pa &e / $

Presumption as to legally enforceable debt Section 13- sa)s t!at it s!all be presumed2 unless t!e contrar) is proved2 t!at t!e !older of a c!eque received t!e c!eque for disc!ar&e2 in 1!ole or in part2 or an) debt or ot!er liabilit). Supreme court reiterated t!e contents of section 13- in t!e case of KN Bena v. Muniyappan & Anr
$

t!at t!e onus is on t!e accused to prove b) co&ent evidence t!at t!ere 1as no debt or liabilit). Notice and its requirements T!e 3I (ct is silent about t!e manner of service of notice. Co1ever2 sendin& b) notice b) re&istered post is desirable as it 1ill be easier to prove service of notice. If notice is sent b) t!e pa)ee at t!e correct address of t!e dra1er2 it 1ould be deemed to be a proper service of notice. Sometimes notice issued is refused or unclaimed b) t!e addressee. In situations suc! as t!is2 it is 1ell settled t!at a notice refused to be accepted b) t!e addressee can be presumed to !ave been served on !im. T!e SC in t!e case of Suman Sethi v. Ajay K huriwala & Anr
'

ruled t!at t!e said

amount of mone) occurrin& in clause 4b5 and 4c5 of section 13+ refers to t!e 1ords <pa)ment of an) amount of mone)= stated in t!e main section 13+. It implies t!at t!e demand !as to be made for t!e amount of t!e c!eque dis!onoured. T!e obBect of t!e notice is to &ive anot!er c!ance to t!e dra1er of t!e c!eque to ma0e up for !is default.

$ '

(IR 2,,, 2,,1SC SC 2+-" (IR +2+

Pa &e / '

Case (nal)sis u*s 13+2 3I (ct 1++1

"#s La$mi D%echem &' (tate of )u*arat + ,rs'
2,12 4115 SC(7E 3$" 4T.S. T!a0ur and E)an Sud!a Aisra2 %%.5

6(CTS #6 TCE C(SE> T!e appellant 1as a proprietors!ip firm en&a&ed in t!e sale of c!emicals. It !ad over t!e past fe1 )ears supplied 3ap!t!alene C!emicals to t!e respondent:compan) a&ainst various invoices and bills issued in t!at re&ard. T!e appellant=s case 1as t!at a runnin& account 1as opened in t!e boo0s of account of t!e appellant in t!e name of t!e respondent:compan) in 1!ic! t!e value of t!e &oods supplied 1as debited from time to time as per t!e standard accountin& practice. ( sum of Rs. 42-12-12,3" 4Rupees 6our Crore 3inet) #ne 7ac 3inet) #ne T!ousand T!irt) 6ive onl)5 1as accordin& to t!e appellant outstandin& a&ainst t!e respondent:compan) in t!e former=s boo0s of accounts to1ards t!e supplies made to t!e latter. T!e appellant=s furt!er case 1as t!at t!e respondent:compan) issued under t!e si&natures of its aut!oriFed si&natories several post dated c!eques to1ards t!e pa)ment of t!e amount aforementioned. Several of t!ese c!eques remained unpaid despite notice bein& served upon t!e respondents under Section 13+ of t!e (ct. T!e trial court too0 co&niFance of t!e matter

and directed issue of summons to t!e respondents for t!eir appearance2 mean1!ile one of t!e si&natories of t!e c!eque filed a Special Criminal (pplication before t!e EuBarat Ci&! Court. T!e EuBarat Ci&! Court referred to t!e Vin!d "anna
8

case> in t!is case t!e court adopted literal interpretation of t!e provision of S. 13+ and said t!at t!e conditions laid do1n in t!e provision !ave to be fulfilled for attractin& criminal liabilit) u*s 13+. Since mismatc!ed si&nature 1as not reco&niFed as a &round for dis!onour of c!eques u*s 13+2 so no offence 1as said to be committed under t!e act.
+

Vinod Tanna and Anr. v. Zaher Siddiqui and Ors. 42,,25 ' SCC "41

Pa& e/ + T!e Ci&! Court in its Bud&ment2 in t!e instant case2 &ave a narro1 and strict interpretation

to Section 13+ of t!e (ct and !eld t!at dis!onour of c!eque on &rounds of mismatc! of si&natures 1ill not attract in&redients of Section 13+ of t!e (ct and insufficient fund as a &round for dis!onour of c!eque cannot be e;tended to t!e instances 1!ere c!eques is dis!onored due to mismatc! of si&natures. (n appeal 1as made a&ainst t!e order of t!e Ci&! Court before t!e Con=ble Supreme Court. GEH ISSDE .E6#RE TCE C#DRT> T!e principal question before t!e Court 1as 1!et!er dis!onour of a c!eque 1ould constitute an offence onl) in one of t!e t1o conditions mentioned under Section 13+ of t!e (ct and not in case 1!ere si&natures on t!e c!eque mismatc! t!e specimen si&natures available 1it! t!e ban0. %D EAE3T #6 TCE C#DRT> T!e Supreme Court rel)in& on its Bud&ment in N#$
-

Mi%!n &td. v. Ma'ma &easin'

&td. !eld t!at t!e e;pression amount of money.is insufficient as appearin& in Section 13+ of t!e (ct is a I&enusJ and dis!onour of c!eque on &rounds suc! as Iaccount closedJ2 Ipa)ment stoppedJ2 Ireferred to t!e dra1erJ inevitabl) result into dis!onour of c!eques issued b) t!e dra1er and t!us suc! &rounds are different IspeciesJ of t!at &enus.

T!e Supreme Court &ave similar interpretation to dis!onour of c!eques due to mismatc! of si&nature or due to Iima&e is not foundJ and !eld t!at t!ese &rounds are also different specie of t!e aforementioned &enus. T!e Supreme Court furt!er !eld t!at t!ere ma) be a situation 1!ere t!e dra1er of t!e c!eque c!an&ed !is si&nature 1it! a fraudulent intention t!at suc! c!an&e in si&nature 1ould result in dis!onour of c!eque. In suc! situation mismatc! of si&nature of dra1er on c!eque 1it! t!e specimen si&natures 1ould constitute dis!onour 1it!in t!e meanin& of Section 13+ of t!e (ct subBect to t!e condition t!at t!e dra1er fails to ma0e pa)ment 1it!in t!e stipulated time despite receivin& statutor) notice under Section 13+ of (ct.

41---5 4 SCC 2"3

Pa& e/ -

Conclusion
T!us2 t!e proper and smoot! functionin& of all business transactions2 particularl)2 t!e ones t!rou&! c!eques as instruments2 primaril) depend upon t!e inte&rit) and t!e !onest) of t!e parties. In our countr)2 in lar&e number of commercial transaction2 it 1as noted t!at t!e c!eques 1ere issued even merel) as a device not onl) to stall but even to defraud t!e creditors. T!e sanctit) and credibilit) of issuance of c!eques in commercial transaction 1as eroded to a lar&e e;tent. Dndoubtedl)2 dis!onour of a c!eque b) t!e ban0 causes incalculable loss2 inBur) and inconvenience to t!e pa)ee and t!e entire credibilit) of t!e business transaction 1it!in and outside t!e countr) suffers a serious setbac0. T!e remed) available in a civil court 1as a lon& dra1n matter and an unscrupulous dra1er normall) 1ould ta0e various pleas to defeat t!e &enuine claim of t!e pa)ee. 6or t!ese reasons2 t!e Parliament2 in order to restore t!e credibilit) of c!eques as a trust1ort!) substitute for cas! pa)ment2 enacted t!e aforesaid provisions2 creatin& criminal liabilit) for dra1er in case of dis!onour of c!eques.

(lt!ou&! t!e 3I (ct provides for e;peditious disposal of trial2 t!e cases in t!e lo1er courts move at a snail=s pace. ( lot is desired in t!is direction. Aa)be Ci&! courts s!ould monitor and issue directions to lo1er courts for speed) disposal of cases to ac!ieve t!e obBective of t!e (ct.

Pa&e / 1,

.iblio&rap!)
T!e follo1in& boo04s5 and 1eb sources !ad been referred in completion of t!is proBect report>

3e&otiable Instruments (ct2 1++1 .are act Eupta2 S.3.2 Bankin !a" in Theory and #ractice$ "t! Edn. 42,1,52 Dniversal 7a1 Publis!in& Co. """.r%i.or .in&commonman&en 'ish&scri(ts&)otification """.manu(atra.com

KKKKK

Pa&e / 11