LAW RELATING TO DISHONOUR OF CHEQUE - EXPERT ANALYSIS

INTRODUCTION

The law relating to the dishonour of cheque is contained in the Negotiable Instruments Act, 1881 (hereinafter referred as “NI Act”) which contains the penal provisions regarding the liability of a person who issued the cheque with an intention not to pay the amount mentioned therein by him. The said penal provisions are contained in Sections 138 to 148 of the NI Act. These sections ensure that the obligation undertaken by issuing cheques as a made of deferred payment are honoured. A cheque is a widely used method of payment and post-dated cheques are frequently used in various transactions in business life. Post-dated cheques are given to provide a certain accommodation to the drawer of the cheque. Therefore, it becomes necessary to ensure that the drawer of the cheque does not abuse the accommodation given to him.

Section 138 of the Act provides for circumstances under which a case for dishonour of cheques is filed. Essential ingredientsof Section 138 of the Act are as under:-

a person must have drawn a cheque for payment of money to another for the discharge of any debt or other liability;
that cheque has been presented to the bank within a period of three months;
that cheque is returned by the bank unpaid, either because insufficient of funds or that it exceeds the amount arranged to be paid from that account by an agreement made with the bank;
A notice thereafter is issued by the payee which is in the form of a demand seeking payment from the drawer to be made within 15 days from the receipt of the memo from the bank regarding dishonor of cheque.
If the drawer fails to make payment to the payee within 15 days of the receipt of the notice, the case under section 138 can be filed.

PROCEDURE TO BE FOLLOWED WITH REGARD TO SECTION 138 OF THE NI ACT

A legal notice is to be issued to the drawer within 15 days of dishonor of cheque by registered post with all relevant facts. The drawer is given a time of 15 days to make the payment, if the payment is made then the matter is served and the issue is settled. On the other hand if the payment is not made then the complainant is to file a criminal case process under Section 138 of the Act, against the drawer within 30 days from the date of expiry of 15 days specified the notice, with the concerned magistrate court within the jurisdiction.
The complainant or his authorized agent should appear in the witness box and provide relevant details for filing the case. If the court is satisfied and finds substance in the complainant, then summons will be issued to the accused to appear before the Court.
If after being served with the summons the accused abstains himself from appearing then the court may issue a bailable warrant. Even after this if the drawer does not appear a non-bailable warrant may be issued.
On appearance of the drawer, if he furnish a bail bond to ensure his appearance during trial, he will be released on bail. Simultaneously, the plea of accused is recorded where he is required to inform regarding his culpability. In case he pleads guilty, the Court posts the matter for punishment. However, if the accused is pleading not-guilty, copy of the complaint is served on him.
The Complainant may present his evidence by way of affidavit and produce all documents including the original in support of his complaint. The complainant will be cross examined by the accused or his counsel.
After the prosecution evidence is complete, the accused is given opportunity for leading his defence wherein he can tender documents supporting his stand and may also examine witnesses to corroborate his defence. The complainant will be afforded an opportunity to cross examine any witness examined by the accused in his defence.
The last stage of the proceeding is that of the arguments after which the court will pass a judgment. If the accused is acquitted then the matter ends, but the complainant can go on further appeal in the High Court, similarly if the accused is convicted he can file an appeal in the Sessions Court. What is important to note here is that the drawer-Accused can compound his offence at any stage of the proceedings and the Hon’ble Apex Court has dealt with this issue extensively which shall be discussed later.

RECENT AMENDMENTS IN NI ACT IN 2018

Due to changing times and the increased pendency of the cases related to the cheque dishonouring, the amendment was brought in the year 2018 which was made effective starting from 1st September 2018. The key features of the amendments are as follows:-

Adding of Section 143-A: This Section has given power to ANY COURT trying an offence under section 138 of the Act allowing the drawer to pay interim compensation to the complainant in summons case or a summary trial where the accused pleads ‘not guilty’. The important aspect is that the compensation amount paid interim shall not exceed 20% of the amount of the cheque and the same shall be payable within 60 days from the date of such Order. In other cases, at the time of framing of charge as well, accused can be directed to pay interim compensation not more than 20% of the amount of the cheque. Supreme Court has held the application of this section to be prospective in nature in the case of G.J. Raja vs Tejraj Surana in Criminal Appeal No.1160 of 2019 decided by Justice U.U. Lalit and Justice Vineet Saran.
- The above amount is to be reimbursed with interest to the drawer in case the drawer of the cheque is acquitted by the Magistrate within a period of 60 days from the Date of the Order. This amount can be recovered as a fine under Section 421 of the Code of Criminal Procedure if the same is not paid by the Drawer/accused within a further period of 30 days (this further 30 days period is given only if the accused is able to show sufficient cause for such delay.
Amendment in Section 148: This section allows the Appellate Court to direct the Drawer when the drawer of the cheque is convicted and files a appeal against it to deposit a minimum of 20% of the fine imposed/compensation awarded to the drawer in the case of the conviction. Here also, if the drawer is acquitted, then in that case, recovery of the amount shall be covered as prescribed under section 143-A. Supreme Court has held the application of this section to be retrospective in nature Surinder Singh Deswal @ Col. S.S. Deswal v. Virender Gandhi decided by Justice Ashok Bhushan and Justice M.R. Shah.