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Negotiable Instruments Act

Section 138, 139, 140 and 141

Negotiable means freely transferable from one person to another person, by mere delivery or by endorsement & delivery. According to section 13 of Negotiable Instrument Act a negotiable instrument means a promissory note, bill of exchange or cheque payable either to order or to bearer.

According to this definition, any other instrument which satisfies the condition of negotiability can be added to the list of negotiable instruments.

Section 138:
This section defines the dishonor of cheque is an offence. The same also defines the main ingredients which have to be fulfilled to make it, an offence.

1988 Amendment to Section 138

If a person issues a cheque and it gets

dishonored the person is said to have done a Criminal offence. Whatever be the reason for the dishonor weather for insufficiency of funds or whatever, the same does not matter.

Five basic ingredients of section 138 which shall have to be fulfilled for creating an offence for dishonor of a cheque
Should

be towards Exclusions: Gift

legal

liability

(existing

debt)

Validity period. Return memo by the drawer bank. Notice to the drawer - within fifteen days (amended to 30

days by the 2002 amendment)

The drawer of the cheque fails to make the payment of the

said amount of money to the payee or to the holder in due course within 30 days of the receipt of the said notice.

Punishment
Section 138 provides for the punishment for dishonor of cheque:

imprisonment for a term which may extend to one year, or with fine which may extend to twice the amount of the cheque, or with both.

Note: the term of punishment was extended to two years

vide 2002 amendment .

EFFECTS OF DISHONOUR OF CHEQUE

1.

Taking legal action. The payee/holder can take action against the drawer of such a bill may take action on the exact time of dishonouring of the bill. Thus the holder need not wait for the bill to mature and then to take action for dishonouring the same. When a cheque is said to be dishonoured it loses its basic characteristic of negotiability with immediate effect. On dishonouring of a cheque, nothing prevents the holder thereof to present it again particularly on being asked by the drawer of the cheque. Mere dishonouring of cheques does not give rise to a cause of action in favour of the complainant but it accrues only after the issue of demand notice and failure of the drawer to make the payment.

2.

3.

4.

Section 139:
By this section it shall be presumed that the holder of a cheque received the cheque for the discharge of some liability or any debt.

Section 139 in The Negotiable Instruments Act, 1881 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.

Negotiable Instruments Act, Sections 138 and 139 Dishonor of cheque - There is no presumption that a cheque (whether it be blank one or not), is executed for discharge of debt or liability In Section 139 word "received" has been used and the word "issued" or executed Holder of cheque has to establish the basis for drawing presumption under Section 139 - Further held The only fact which can be presumed under Section 139 is the `PURPOSE' for which the cheque is received by the complainant - The Court can presume under Section 139 of the Act that the purpose for which the cheque is received by the holder is, "for discharge of a debt or liability" - But the court cannot presume that the cheque is "issued/executed/drawn" by the accused.

Negotiable Instruments Act, Sections 139 and 138 - There is no presumption under Section 139 that cheque was issued in discharge of debt or liability - Before drawing presumption under Section 139 of Negotiable Instruments Act, Court must be satisfied :(1) That the person who seeks the benefit of the presumption in Section 139 is the "holder" as defined under Section 8 of the Act. (2) That such person is entitled in his own name to the possession of the cheque and also to receive the amount due from the parties thereto. (3) It must be established that such a person is in possession of same by way of entitlement. (4) There must be evidence at least for the fact that he "received" the cheque as of right and did not obtain it by any other mode.

(5) If the court is satisfied that he is the "holder" of the cheque

Section 140:
Defense which may not be allowed in any prosecution under section 138. It shall not be a defense 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 dishonored on presentment for the reasons stated in that section.

The state of mind of the accused person, his knowledge or reasonable belief are not the necessary Ingredients of an offence under section 138 of the Negotiable Instruments Act, 1881, and, therefore, the provision contained in section 140 of the Act that it shall not be a defense 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 dishonored on presentment,

Section 141

This section defines that if an offence done by any company, the person/s shall be held liable who were in charge and responsible to the company, for the conduct of the business of the company, at the time the offence under section138 was committed.

Supreme Court

examined:
The provisions of sections 138 and 141 of the Act and noted that mere dishonor of a cheque would not raise a cause of action unless the payee makes a demand in writing to the drawer of the cheque for the payment and drawer fails to make the payment of the said amount of money to the payee.

This Act gained much importance among companies due to the section 141 because, this is the section, through which the persons shall be held liable for the conduct / offence committed under the Act by a company.

The section also gave a reason to think twice to the responsible person/s of a company who makes commitment for and on behalf of the company to pay someone through negotiable instrument/s.

More Over From 06.02.2003 (by the 2002 amendment)

The said offence will be punishable with

imprisonment for
a term up to

2 years or with

fine twice the amount of the cheque or both

under section 138 of the Act

Thank You