[2010] 100 SCL 6 (MAG)

 
Dishonour of Cheque : "Does Criminal Liability Solve the Problem"?
 
ABHISHEK KUMAR
A cheque is said to be dishonoured when the payment is not made on its presentation to the bank. To develop and create
the faith of the cheque among the people, criminal as well as civil liability are imposed. The provisions to some extent
created apprehension of punishment in the mind of the drawer of the cheque to not to issue the cheque when they do not
have sufficient amount of money in their account but the evil did not remove fully, which is evident from the fact that
cases regarding the dishonour of cheque are coming in bulk in the Court. This article traces the relevant provision which
deal with the dishonour of cheque. The author opines that the criminal liability under section 138 has not solved the
problem of cheque bouncing and the Act is a failure.
The failure of the Act has more sociological and cultural bases than structural defects inbuilt in the Act. Indian do have
extremely small regard for the imperatives of discharging their financial obligations. They think nothing erroneous in
issuing a cheque for the reason of discharging their financial obligations that they know will be dishonoured on
presentation for insufficiency of funds in their bank accounts.
They do not file a complaint for being issued a dishonoured cheque in the Court, but would rather find other means of
getting back debts owed to them by the drawers of the cheque.The author has suggested that the amendments should be
made to remove various structural and functional defects that, together with socio- cultural factors, have impeded the
achievement of the objective of the Act.
Introduction
1. A cheque is said to be dishonoured when the payment is not made on its presentment to the bank. Earlier before 1988, there was no
liability provided in case of dishonour of cheque but after the insertion of section 138 in the Negotiable Instruments Act, 1881 (‘the Act’)
criminal as well as civil liability were imposed by way of short-term imprisonment and fine on the dishonour of the cheque. To develop and
create the faith of the cheque among the people, currently, nearly all the banks whether public or private are issuing cheques for the transfer
of money and its use has been augmented to the large extent in comparison to earlier. As the use of cheque and the cases of dishonour of
cheque have been increased, the Legislature looked towards the problem and provided remedy by affixing civil and criminal liability to
solve the problem.
The provisions to some extent created apprehension of punishment in the mind of the drawer of the cheque to not to issue the cheque when
they don’t have sufficient amount of money in their account but the evil did not remove fully, which is evident from the fact that cases
regarding the dishonour of cheque are coming in bulk in the Court.
There are certain ingredients enunciated by the judiciary and provided in the Act itself that must be fulfilled in order to held drawer liable
for the dishonour of cheque.

The main object of the Act is to legalise the system by which instruments contemplated by it could pass from hand to hand by negotiation
like any other goods.-------------------------

1-2.See,http://www.thehindubusinessline.com/iw/2001/07/29/stories/0729g252.htm, last accessed on 18th January, 2010.

3.This is the origin of contemporary interest on bank deposits.
4.See, J.M., Holden, The History of Negotiable Instruments in English Law (Pitman Publication Ltd.) 1955 and J.M., Holden, The Law and Practice of
Banking, Vol. 1, 3rd edition, (Pitman Publication Ltd., London) 1983, p.30; In explicit stipulations, the origin of cheques is traced to the period immediately
preceding the civil war in Britain in 1642.
5.See, J.M., Holden, The History of Negotiable Instruments in English Law (Pitman Publication Ltd.) 1955.
6.See, J.M., Holden, The Law and Practice of Banking, Vol. 1, 3rd edition, (Pitman Publication Ltd., London) 1983, P.30.
7.See, section 6 of the Act.
8.See, Chalmers and Guest on Bills of Exchange And Cheques, 16th Edition, (Thomson, Sweet & Maxwell, London), 2005, para 13-004, p. 618.
9.See, Bryan A. Garner, Black’s Law Dictionary, 7th Edition (West Group), 1999.
10.AIR 1972 AP 72.
11.Presumption in favour of holder - It shall be presumed, unless the contrary is proved, that the holder of a cheque received the cheque of the nature
referred to in section 138 for the discharge, in whole or in part, of any debt or other liability.
12.Defence which may not be allowed in any prosecution under section 138 - 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 that section.
13.Offences by companies - (1) If the person committing an offence under section 138 is a company, every person who, at the time the offence was
committed, was in charge of, and was responsible to, the company for the conduct of the business of the company, as well as the company, shall be deemed
to be guilty of the offence and shall be liable to be proceeded against and punished accordingly : Provided that nothing contained in this sub-section shall
render any person liable to punishment if he proves that the offence was committed without his knowledge, or that he had exercised all due diligence to
prevent the commission of such offence: [Provided further that where a person is nominated as a Director of a company by virtue of his holding any office
or employment in the Central Government or State Government or a financial corporation owned or controlled by the Central Government or the State
Government, as the case may be, he shall not be liable for prosecution under this Chapter.] (2) Notwithstanding anything contained in sub-section (1), where
any offence under this Act has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is
attributable to, any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer
shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly. Explanation.—For the purposes of this
section,— (a)‘company’ means anybody corporate and includes a firm or other association of individuals; and ( b)‘director’, in relation to a firm, means a
partner in the firm.
14.Cognizance of offences - Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974),— ( a)no Court shall take cognizance
of any offence punishable under section 138 except upon a complaint, in writing, made by the payee or, as the case may be, the holder in due course of the
cheque; (b)such complaint is made within one month of the date on which the cause-of-action arises under clause ( c) of the proviso to section 138 :
[Provided that the cognizance of a complaint may be taken by the Court after the prescribed period, if the complainant satisfies the Court that he had
sufficient cause for not making a complaint within such period;] ( c)no Court inferior to that of a Metropolitan Magistrate or a Judicial Magistrate of the first
class shall try any offence punishable under section 138.
15.Kody Elecot Ltd. v. Down Town Hospital [1991] 71 Comp. Cas. 125 (Mad.).
16.Rajiv Kumar v. State of UP [1993] 78 Comp. Cas. 507 (All.).
17.Power of Court to try cases summarily.—(1) Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974), all offences under
this Chapter shall be tried by a Judicial Magistrate of the first class or by a Metropolitan Magistrate and the provisions of sections 262 to 265 (both inclusive)
of the said Code shall, as far as may be, apply to such trials : Provided that in the case of any conviction in a summary trial under this section, it shall be
lawful for the Magistrate to pass a sentence of imprisonment for a term not exceeding one year and an amount of fine exceeding five thousand rupees:
Provided further that when at the commencement of, or in the course of, a summary trial under this section, it appears to the Magistrate that the nature of
the case is such that a sentence of imprisonment for a term exceeding one year may have to be passed or that it is, for any other reason, undesirable to try the
case summarily, the Magistrate shall after hearing the parties, record an order to that effect and thereafter recall any witness who may have been examined
and proceed to hear or rehear the case in the manner provided by the said Code. (2) The trial of a case under this section shall, so far as practicable,
consistently with the interests of justice, be continued from day-to-day until its conclusion, unless the Court finds the adjournment of the trial beyond the
following day to be necessary for reasons to be recorded in writing. (3) Every trial under this section shall be conducted as expeditiously as possible and an
endeavour shall be made to conclude the trial within six months from the date of filing of the complaint.
18.Mode of service of summons.—(1) Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974), and for the purposes of this
Chapter, a Magistrate issuing a summons to an accused or a witness may direct a copy of summons to be served at the place where such accused or witness
ordinarily resides or carries on business or personally works; for gain, by speed post or by such courier services as are approved by a Court of session.
(2) Where an acknowledgement purporting to be signed by the accused or the witness or an endorsement purported to be made by any person authorised by
the postal department or the courier services that the accused or the witness refused to take delivery of summons has been received, the Court issuing the
summons may declare that the summons has been duly served. 19. Evidence on affidavit.—(1) Notwithstanding anything contained in the Code of Criminal
Procedure, 1973 (2 of 1974), the evidence of the complainant may be given by him on affidavit and may, subject to all just exceptions be read in evidence in
any enquiry, trial or other proceeding under the said Code. (2) The Court may, if it thinks fit, and shall, on the application of the prosecution or the accused,
summon and examine any person giving evidence on affidavit as to the facts contained therein.
20.Bank’s slip prima facie evidence of certain facts - The Court shall, in respect of every proceeding under this Chapter, on production of bank’s slip or
memo having thereon the official mark denoting that the cheque has been dishonoured, presume the fact of dishonour of such cheque, unless and until such
fact is disproved.
21.Offences to be compoundable - Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974), every offence punishable under
this Act shall be compoundable.
22.Smt. Ramawati Sharma v. Union of India AIR 1999 All. 21, see also V.A. Noori v. Union of India [1999] 98 Comp. Cas. 38 (AP).
23.[2005] 124 Comp. Cas. 621 (AP); see also, K. Annaji Rao v. N. Krishna Raju Sekhar [2005] 121 Comp. Cas. 831 (AP).
24.Mahendra S. Dadia v. State of Maharashtra 1998 Cri. LJ 4361.
25.See, timesofindia.indiatimes.com/Cities/ Lok Adalats can decide cheque bouncing cases HC /rssarticleshow/4049416.cms - 45k, last accessed on 20th
January, 2010.
26.[1999] 1 Bank LLR 393.
27.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 provisions of this Act, be punished with imprisonment for [a term which may be extended 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.]
28."Cheating with knowledge that wrongful loss may ensue to person whose interest offender is bound to protect.—Whoever cheats with the knowledge that
he is likely thereby to cause wrongful loss to a person whose interest in the transaction to which the cheating relates, he was bound, either by law, or legal
contract to protect, shall be punished with imprisonment of either description for a term which may extend to three years or with fine, or with both."
29."Cheating and dishonestly inducing delivery of property.—Whoever cheats and thereby dishonestly induces the person deceived to deliver any property
to any person, or to make, alter or destroy the whole or any part of a valuable security, or anything which is signed or sealed, and which is capable of being
converted into a valuable security, shall be punished with imprisonment of either description for a term which may extend to seven years, and shall also be
liable to fine."
30.See, S.N. Gupta, Dishonour Of Cheques, Liability-Civil & Criminal, 5th edition, (Universal Law Publishing Company, Delhi), 2006, p. 104.
31.1994 Bank J 652.
32.See, section 138, Negotiable Instruments Act, 1881
33.See, Ibid.
34.[1995] 83 Comp. Cas. 172 (Mad.), See also, Shirdi Sai Steel Balu Complex v. State of Andhra Pradesh 2002 Cri. LJ 3193 (AP).
35.[1996] 86 Comp. Cas. 487.
36.See, supra note 14.