A quick visit to diverse issues involved in 138 matters To Dishonour a Cheque is a Criminal Offence, if the cheque was given

in discharge of a debt. 1) IMPORTANCE AND OBJECT OFSection 138 of Negotiable Instrument Act 1881[for short N.I. Act 1881] as observed by Honble SC--Dishonour of cheque causes incalculable loss and inconvenience to payee and entire credibility of business transaction within and outside country suffers serious setback. Goa Plast Pvt Ltd versus Chico Ursula Dsouza (2004) 1 BC 246 (SC) The object of enacting section 138 is to punish unscrupulous persons who issue cheques without any intention to honour. D Vinod Shivappa versus Nanada Belliappa. AIR 2006 SC 2179. The entire genesis of section 138 is that the cheque so dishonoured was given in the due discharge of a legally enforceable debt.

2) NATURE OF 138 OFFENCE AND COURT PROCEEDINGS Dishonour of a cheque is an economic offence. Common Cause versus UOI AIR 1996 SC 1916. Proceedings under section 138 is a criminal prosecution and is not a recovery of money proceeding and the offence calls for conviction and sentence of imprisonment or fine or both. BSI Ltd versus Gift Holding Pvt Ltd AIR 2000 SC 926 Offer of payment after institution of complaint is of no value and is useless. It is at the most a mitigating circumstance to be taken into account in award of sentence. M M Chhabra versus Hardev Singh (2003) 1 BC 214 (P & H)

3) To bring home the guilt of the accused under section 138 of the N.I. Act 1881, the following is to be satisfied to make out a strong case and to secure conviction of the person whose cheque is dishonoured for Insufficient funds. 1. That Person must have issued a Cheque from the Account maintained by him in a bank; 2. The Cheque issued by that person is in the discharge of any legally enforceable debt or other liability; 3. The Cheque was deposited in the Bank within Six month from the date which the Cheque bears; 4. The said deposited Cheque was returned by the Bank for reason Insufficient fund; 5. The holder of the dishonoured Cheque issues a Notice in Writing within 30 days from the date of Bank's intimation that the said Cheque is returned, and by the said Notice, makes a demand of the payment of the Cheque amount; 6. The Person who issued the cheque failed to make payment within 15 days from the date of receipt of the said Notice; 7. The holder of the dishonoured Cheque must file the Complaint within 30 days, before the Judicial Magistrate who has Jurisdiction to adjudicate upon the Dishonour of Cheque Complaints. The period of 30 days is to be calculated from the expiry of fifteen days from the date on which the issuer of cheque receive the notice. Like for example If the intimation from bank about Dishonour is received on 01.01.2010, then the holder of cheque is obliged to give Notice within 30 days, i.e. by 30.01.2010. Suppose if Notice is given on 30.01.2010 and was received on 05.02.2010, then the Recipient of Notice is obliged to make payment within 15 days from the date of receipt of Notice, i.e. by 20.02.2010. If by 20.02.2010, the giver of Notice receive no payment, then he is obliged to file complaint within next 30 days, i.e. within 22.03.2010. ( 8 days of feb and 22 days of march)

4) DEFENCES AVAILABLE TO THE ACCUSED Defences those are available under proceedings under section 138: 1. The Defence that there is no legally enforceable debt or liability existed on the day when cheque was issued. 2. Plea of limitation. 3. The Cheque was given with certain conditions

5) NOTICE In a case notice of Dishonour was sent under regd post and under Certificate of Posting on correct address. It was returned with the postal endorsement Not Claimed. Notice was held to be duly served. N E Verghese versus State of Kerala 2002 CrLJ 1712 (Ker) In a case Notice was sent and returned with the endorsement refused. It amounted to receipt of the notice. The HC observed that it must be borne in mind that the court should not adopt in interpretation which helps a dishonest evader and clips an honest payee as that would defeat the very legislative measure. Arvind Bhat Selarka versus Dilip Cogad 2003 CrLJ 3360 (P & H HC ) Notice sent by UPC Not retuned. Deemed to be served. P K Radha Krishna versus Vijyan Nambiar 2005 CrLJ 4184 (Kant) Requisite condition of valid notice is that it should be in writing and must demand for value of the cheque. Minor discrepencies do not invalidate the notice. Abdur rehman M Mulgand versus Mohammed hashan Mulgand 2006 Cr LJ 1159 (Bom) (Goa Bench) During the validity period of six months, the cheque can be presented any number of times, but once a demand notice is given under section 138(b), the cheque cannot be deposited any more. It was held that once the demand notice is issued, the limitation starts and it is of no use if the accused requests for more time for payment. The holder of cheque must either receive payment or he must file complaint within stipulated time aforesaid. AIR 1998 SC 3043 AIR 1973 SC 908 Syed Rasool versus Aildas & Company 1992 CrLJ 4048 (AP) The notice given by the Advocate without his signature is not invalid in the eyes of law. Sri Satyanarayana Gowda versus B Rangappa 1996 CrLJ 2264 (Karn) AIR 1995 Karn 219 It is a case where the notice was issued but its service was disputed. The trial court presumed that the accused was evading service. It was held that it is a question of fact to be decided in the trial. The Complaint could not be quashed. Syed Hamid Bafkay versus Moideen (1993) 85 Comp Cas 267 : 1996 CrLJ 1013 (Ker)

6) CONSEQUENCES OF NOT REPLYING NOTICE OR EVADING NOTICE Where the person did not dispute his liability at the time when the Notice was given to him, the Court said- This is an important aspect of the law insofar as if the liability is non existent and if the demand is unjustified. The law requires that that the person receiving the notice should clarify the position or dispute the liability at the time when notice is received by him. If this is not done, the court will take note of the fact that the accused did not dispute the factual legal position at the time when notice was served and the accused has come out with an explanation at a belated stage and the court will draw appropriate inferences therefrom. Devi Tyres versus Nawab Jan 2001 AIR Kant HCR 2154 at page 2159.

7) PLACE OF FILING COMPLAINT In K. BHASKARAN Vs. SANKARAN VAIDHYAN BALAN AND ANR. {1999 AIR 3762, 1999 Supp (3) SCR 271, 1999(7) SCC510 , 1999(6)SCALE272 , 1999(7) JT558; DATE OF JUDGMENT: 29/09/1999} SC has held as follows: The offence under Section 138 of the Act can be completed only with the concatenation of a number of acts. Following are the acts which are components of the said offence : (1) Drawing of the cheque, (2) Presentation of the cheque to the bank, (3) Returning the Cheque unpaid by the drawee bank, (4) Giving notice in writing to the drawer

of the Cheque demanding payment of the cheque amount, (5) failure of the drawer to make payment within 15 days of the receipt of the notice. The Complainant can choose any one of the court of the local area within the territorial limits of which any one of those above five acts was done.

8) DELAY IN FILING COMPLAINT Delay in filing may be condoned in the interest of Justice. Sulekh Sandip Hazare versus Sanjeev Shiv Parker (2004) 4 BC 128 (Bom) Delay in filing witness list in the complaint doesnt entail fall of the complaint. Augusty versus Rajan (1999) 2 BC 217 (Ker) The Court may take cognizance if the Complainant satisfies the court that he had sufficient reasons for not making complaint within time. Section 142(b) O P Chirania versus The Director of Lotteries and Dy Secretary of Govt of Haryana 2008 (3) JCC (NI) 356 (Del) (1998) 6 SCC 514 (2005) 4 SCC 417

9) AVERMENTS IN THE COMPLAINT It is not suffice to say in the complaint that the cheque was issued in the regular course of business. In the Complaint there has to be some specific indication of the existence of a legally enforceable debt or liability of the person who has issued that cheque. K Kumar versus Bapsons Footwear(1995) 83 Comp Cas 172 Mad However, there is no burden on the Complainant to prove the entire details of the transaction which resulted in the issuance of the Cheque. It is suffice if it is stated that the cheque was issued in discharge of a specific legally enforceable debt or liability. Joseph Jose versus J Baby (2002) 2 Ker LJ 332 (Ker)

10) BURDEN OF PROOF When the Payee of the Cheque produces the Cheque which was issued by the drawer and dishonoured, he fulfills his initial burden to enable him to file complaint because rest of the matter are covered by the presumption in his favour under section 139 and 118 of the NI Act 1881. Abdul Hameed versus State of rajasthan (2002) 3 BC 529 (Raj) The most common presumption about cheque is that it is for payment of what is due. It is meant to extinguish that debt and not to create a new one. However, it is always open to the drawer of the cheque to show that the cheque was issued as a loan. Mohummed Kutty versus Abdulla (2002) 3 BC 9 Ker (DB) Contrary to established criminal jurisprudence, a person issuing a cheque which has been dishonoured is presumed guilty and is put under burden to prove his innocence by establishing that the cheque

was given but not in discharge of any legally enforceable debt. R Sankaralingam versus UOI (1997) 1 BC 541 (Mad- DB) It is not necessary for the accused to lead positive evidence to rebut the presumption. The circumstances on record may prove to be sufficient for rebuttal purposes. Raman Finance Corp versus Harmat Singh (2007) 3 BC 647 (P& H- DB) Where the presumption is not rebutted, the offence is made out. R Vadivelu versus Sakhti Asphalts & pelts (2003) 2 BC 89 (Mad) Drawer of the cheque is to prove that there is no liability towards the payee and cheque was not issued towards discharge of any legally enforceable liability. V Munikrishaniaha versus Janki Ram Naidu 2005 CrLJ 1093 (AP) Jagmohan versus State of U P 2005 CrLJ 1361 (All)

11) COMPROMISE / SETTLEMENT In a case, the Complainant refused to compromise with the accused. The court held that in such a case there cannot be a compromise and proceedings cannot be quashed even if the whole amount is deposited in the court. The Court said- any amount paid subsequent to the filing of complaint will not absolve the accused from criminal liability incurred under section 138 of the NI Act 1881. Phoolchand saraogi versus State of Rajasthan AIR 2009 (NOC) 959

(Raj) (2005) 2 SCC 571

12) COMPENSATION It has been held that normally in a successive prosecution under Section 138, a direction under section 357 of CrPC for payment of compensation must follow. In M S Anil Kumar versus Shamy (2002) 2 Ker LJ 711 (Ker), the Court said that very prospect of going to prison, irrespective of the length of the term, is sufficient deterrence. The Court further noted that the Courts below did not alertly perceive the plight of the Complainant. In spite of the several binding precedents like Hari Kishan and State of Haryana versus Sukhbir Singh AIR 1988 SC 2127, it is unfortunate that Courts do not perceive the necessity to compensate the victim. The work pressure on the judicial system is enormous. It must be the endeavor of all functionaries to ensure that multiplicity of proceedings is avoided. In that view, every court has a duty to insist and ensure that the Complainant is not compelled to simultaneously institute civil remedies alonwith the prosecution under section 138. Misplaced sympathy cannot also have in the criminal adjudicatory process. It is equally the purpose of the legislature to ensure that account holder make use of their cheques carefully, diligently and with requisite caution so that the intended healthy commercial morality would prevail in the economy. That cannot be achieved unless the account holders are deterred from irresponsible issue of cheques to suit their convenience

In a case, a cheque for Rs.1,50,000 was dishonoured. The accused was held guilty. The Court awarded compensation of Rs.3,00,000. Rs.2,95,000 went the complainanat and Rs.5000 to the State exchequer. Bhavani versus D C Dodda Xangaiah 2000 CrLJ 3814 (Karn) B Hari Krishna versus Macro Links Pvt Ltd ILR 2000 (Ker) 2855.

13) PUNISHMENT When a person is found guilty, it is obligatory on the court to impose sentence of imprisonment or fine or both. Thomas versus Kerala State (2004) 3 BC 128 Ker In a case the Hon'ble SC observed and said- proceedings under section 138 of NI Act 1881 are not recovery proceedings and these proceedings are meant to punish the persons who after issuing a cheque, commmits default in honouring the same. Dhanjit Singh Nanda versus Ram Kumar Agarwal 2009 (2) JCC (NI) 99 (Del) AIR 1982 SC 1238 (1988) 4 SCC 655

In a case the whole amount covered by the cheque has been deposited after the institution of the Complaint. The SC held that it does not absolve the accused from the offence under section 138. Rajneesh Agarawal versus Amit J Bhalla AIR 2001SC 518 AIR 1999 SC 2182; AIR 1998 SC 1057 In a case, the Hon'ble SC cautioned and said that no drawer of cheque can be allowed to take Dishonour of cheque issued by him light heartedly. Suganthi Suresh Kumar versus Jagdeeshan (2002) 2 SCC 420 AIR 1988 SC 1353 AIR 2001 SC 567 14) LEGALLY ENFORCEABLE DEBT The dishonoured Cheque issued in the discharge of a legally enforceable debt or liability may or may not arise out of commercial transaction. Dickson Prem Raj versus R Manoharan (1995) 83 Comp Cas 245 Mad. Under section 25(3) of the Contract Act 1872, a promise in writing to pay a time barred debt and any cheque issued in furtherance of such promise, becomes legally enforceable liability. Zaheeda Kazi versus Sharina Ashraf Khan (2007) 3 BC 767 (Bom) If the debt is time barred by reason of section 18 of the Limitation Act 1963, the debt is not legally recoverable at the time of issue of cheque. M/s Vijaya Polymers Pvt Ltd versus M/s Vinnay Agarawal 2009 (2) JCC (NI) 144 Del No liability where rejection of goods justifiable. Keygien Global Ltd versus Madhav Impex (2007) 2 BC 355 (Kant)

15) CHEQUE WAS ISSUED IN DISCHARGE OF ANOTHER PERSONS LIABILITY A careful reading of section 138 indicate that it relates to issuance of a cheque for payment of any amount of money for discharge of any debt

or other liability. The wording of the section implies that the cheque may have been given in discharge of another person's liability. Devendra Kumar Rai versus Ram Gopal Rai (1998) 34 All LR 169 (All) The Cheque is issued for discharge of another person's liability comes within the purview of section 138 of the NI Act 1881. Gopi S/o vasudevan versus Sudershan, S/o Chakarpani 2002 CrLJ 4194 (Ker)

16) CHEQUE GIVEN IN PURSUANCE TO ILLEGAL Contract / Agreement If a cheque is issued in respect of a debt or liability which is not legally enforceable, section 138 would not apply. The Court will refuse to enforce an illegal agreement. Virendra Singh versus Laxminarayan 2007 (1) JCC (NI) 6 (Del)

17) CHEQUE IN GIFT / CHARITY If the cheque is given as a gift or in charity, it does not amount to offence under section 138 of the NI Act 1881. 1997 CrLJ 4237 (AP) Uplanche Mallikarjun versus Rat Kanti Vimla.

18) DIFFERENCE IN THE AMOUNT OF DEBT AND AMOUNT OF CHEQUE If there is difference in amount in the Notice and the actual cheque amount, it was held that- the case of the Complainant doesnt fail. If the outstanding debt is higher than the cheque amount, there is no irregularity. Devi Tyres versus Nawab Khan AIR 2001 Kant HCR 2154 (Kant) It is immaterial whether the amount of the cheque is more or less than the liability. Only thing is that the whole amount of the cheque is

necessary to discharge the debt or legal liability. P V Kochayippa versus P N Suprasidan, rajni Dhawan 2002 CrLJ 4803 (Ker)

19) PARTNERSHIP FIRM An unregistered Partnership firm can institute a complaint under section 138. The effect of non registration under section 69 of the partnership Act 1932 are confined to cases of civil rights. Beacon India versus Anupam Ghosh (2004) 1 BC 484 (Kar)

20) OFFENCES BY COMPANIES AIR SC 2000 145 Anil Hada versus Indian Acrylics Ltd The managing Director of a company accused under section 138 was held guilty notwithstanding her plea that she did not participate in the day to day administration of the company and was not aware of its affairs. Jayalakshmi Natraj versus Jeena & Co (1996) 86 Com Cases 265. Offences by Companies Orient Syntex Ltd versus Besant Capital Tech Ltd (1999) 2 BC 609 (Bom) Notice to Company is deemed notice to MD. Sarvaraya Tea Ltd versus Integrated Finance Ltd (2001) 2 BC 476 (Mad) When the offence is committed by the company, either the company alone, or the person in-charge of the company alone, or both of them together can be prosecuted for the offence under section 138 of NI Act 1881. Visva Cement products versus Karnataka State financial Corp Gadag (1997) 4 Kant LJ 23 : 1997 CrLJ 4598 (Karn) AIR 1976 SC 1672 AIR 1972 SC 2639 AIR 1984 SC 1824

21) SELF CHEQUE In a case it was held that the holder of self cheque is a holder in due course and the complaint is maintainable. Mahesh Goyal versus S K Sharma CrLJ 2868 (P & H)

22) HOLDER IN DUE COURSE Holder in due course has no right to maintain a complaint because there was no enforceable debt between him and the drawer of the cheque. Shirdi Sri Steel Balu Complex versus State of A P 2002 CrLJ 3193.

23) SIGNATURE ON THE CHEQUE A person consciously or unconsciously may put different signatures. In this case, the applicant being conscious of anticipated litigation, might have scribed different signature with dishonest intention of defeating provisions. Satish Jayantilal Shah versus Pankaj Moshruwala (1997) 1 BC 320 (Guj) The fact that the Payee's name and the amount of cheque were not in the handwriting of the drawer doesnt invalidate the cheque. Lily Kutty versus Lawrence (2004) 1 BC 130 (Ker- DB) It is not essential for the Court to get the opinion of the expert in each and every case, especially when the court is empowered to compare the signature with the admitted signature u/s 73 of the Evidence Act. S Naagarathinam versus P marappan (2000) 2 BC 170.

24) PAY ORDER AND CHEQUES Pay Order is a Cheque within the purview of section 138 of the Act. Punjab & Sind Bank versus Vinkar Sahakari Bank Ltd (2001) 7 SCC 721 : AIR 2001 SC 3641.

25) REFER TO DRAWER / STOP PAYMENT / ACCOUNT CLOSED Refer to Drawer We are of the firm view that Refer to Drawer necesasrily means, as per banking parlanc, that the cheque has been returned for want of funds in the account of the drawer of the cheque. State of Bihar versus Deokaran Nenshi AIR 1973 SC 908 AIR 1960 SC 866 Syed Rasool versus Aildas & Company 1992 CrLJ 4048 (AP) Accounts Closed amounts to Insufficieny of funds. NEPC Micon versus Magma Leasing Ltd AIR 1999 SC 1952 AIR 1988 SC 1057 AIR 1966 SC 2339 Stop Payment or Instructions for non payment- virtually means insufficieny of funds. Electronics Trade & Technology Development Corp Ltd versus Indian Technologists and Engineering (Electronics) Pvt Ltd. (1996) 2 SCC 739 AIR 1998 SC 1057

26) BLANK CHEQUE In a case accused raised the defence of having issued blank cheques as a security. Still, burden lies on the accused to prove that on the date of dishonour of cheque no amount was due from him to the complainant. Latha K Nair versus M/s Gold Mohur Foods & Feeds Ltd 2008 CrLJ 1542 (Kant) AIR 1961 SC 1316. Blank Cheque given as security. This defence is not available to the accused. The accused must satisfy the court that there exist no legally enforceable debt. ICDS Ltd versus Beena Shabeer AIR 2002 SC 3014.

27) CHEQUE MISPLACED In a case, the issue was that the cheque was given to discharge the debt borrowed on a promissory note, but the said promissory note was not produced. It was held that mere loss of promissory demand note or its non production is not sufficient to hold that there is no legally enforceable debt. Failure of accused to give reply to legal notice is one of strong circumstances to draw an inference that the accused borrowed amount in question and the cheque was issued towards payment of legally enforceable debt. Gorantla Venkteshwara Rao versus Kolla Veera Raghava Rao 2006 (1) JCC (NI) 73 (AP)

28) STOLEN CHEQUE In a case defence was taken that the cheque was stolen. However no police complaint was made. No instructions were made to the bank to stop payment. The defence was struck down. Ashok Kumar versus Gulshan Kumar 2010 (1) Crimes 394 (Del) Hiten P dalal versus Bratindranath Banerjee (2001) 6 SCC 16 (2006) 6 SCC 39 (1999) 3 SCC 35.

29) JOINT ACCOUNT In a case, a cheque was issued by a husband from an account jointly

operated by his Wife. It was held that the wife cannot be held responsible or liable. T N Devi versus A C Haridas 2004 CrLJ 4710 (Ker)

30) INSOLVENCY PETITIONS In a case, insolvency Petition was filed covering the dishonoured cheque amount. It was held that mere presentation or pendency of Insolvency petition would not disentitle the complainant to seek for remedy by way of penal action. C T Thangaraj versus Marugesan 1999 CrLJ 3436 (Mad)

31) EXEMPTION FROM APPEARANCE The offence under section 138 depends upon documentary evidence and therefore presence of accused is not very much necessary, at all stages of the trial. The trial court was directed to allow the accused to be represented through counsel. Agro Services center versus State of Orissa (2005) 1 BC 308. Also item numbers 720, 726, 732, 737, 738 in Tannan book

32) APPLICATION OF SECTION 482 CrPC 1973 It is impermissible to invoke the provisions of section 482 of CrPC 1973

to quash a complaint when the facts are contentious and disputed. GPR Hsg Pvt Ltd versus K Venugopala Krishna (2004) 3 BC 37 (Ker)

33) MONEYLENDERS The presumption under section 139 is not available to a moneylender. He has to prove the fact of a loan by other evidence and not merely by the fact of presumption. M Senguttuvan versus Mahadevaswamy (2007) 4 BC 708 (Kant)

34) PROPRITORSHIP CONCERN Prosecution against proprietorship concern Complaint must be against the proprietor.

is

not

maintainable.

Thank you Sandeep Jalan Advocate Mumbai.