INTRODUCTION
Dishonor of cheque is defined under Section 138 of the Negotiable Instrument Act, 1881. It talks about the non-payment of the amount mentioned in the cheque to the payee by the drawee due to insufficiency etc. of funds in the account.
CHEQUE
A Cheque is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on-the-demand and it includes an electronic image of a truncated cheque and a cheque in electronic form as defined under Section 6 of the Negotiable Instrument Act, 1881.
PARTIES OF THE CHEQUE
The parties of the cheque are as follow:
- DRAWER: The person who draws the cheque.
- DRAWEE: The bank on which the cheque is drawn or the person who is directed to pay the specified sum written on the cheque.
- PAYEE: The person to whom the amount is to be paid.
DISHONOUR OF CHEQUE:
Dishonor of cheque means non-payment of amount specified in the cheque to the payee by the drawee due to the insufficiency etc. of the funds in the account. It is a Compoundable Offence. Prior to 1998, the dishonor of the cheque was a civil offence.
The Banking, Public Financial Institutions and Negotiable Instruments Laws (Amendment) Act, 1988 was amended and made the dishonor of cheques a criminal offence and the offender is liable for the imprisonment which may extend to a term of one year or with fine which may extend to twice the amount of the cheque, or with both.
The Negotiable Instruments (Amendment and Miscellaneous provisions) Act, 2002 further extended the term of imprisonment up to two years.
Filing a complaint under Section 138 of the Act
For filing a complaint, the complainant needs to follow these steps:
1. Dishonor of Cheque(s):
The complainant should mention why the cheque is dishonored. The cheque can be dishonored due to:
- Insufficiency of fund in the account of the drawer;
- Issuance of stop payment instructions by the drawer to the drawer’s bank;
- Amount of cheque exceeding the arrangement with the drawer’s bank.
2. Notice asking for payment of dues
A legal notice for dishonor of cheque must be issued before any action. Section 138 of the Negotiable Instrument Act provides that – once the cheque has been dishonored, a notice needs to be issued (by registered A.D.) to the drawer within 30 days of the receipt of memo from drawee bank that the cheque is dishonored is received. The legal notice for dishonor of cheque which is sent to the drawer should contain the following points;
- The cheque issued was presented for payment in bank.
- The cheque was subsequently dishonored for the reason provided by the drawee bank.
- Asking for payment for sum written on cheque within a period of 15 days from the date of receipt of notice.[ST1]
3. Filing complaint
If the drawer after receiving the legal notice regarding the dishonor of cheque remains silent, or refuses to pay the money within 15 days from the date of receipt of notice, then a criminal complaint should be filed against the drawer (“Accused”) within next 30 days from the expiry of the time period provided to the drawer.
4. Place of filing the complaint
The place for filing the complaint shall be determined based on any of the following:
- Place of the bank on which the cheque is drawn;
- Place where cheque is presented to the bank and the same is dishonored;
- Place of residence/business of the Complainant;
- Place of residence/business of Accused;
- Place from where the notice is sent to the drawer of the cheque demanding the cheque amount.
5. Punishment
If the accused is found guilty then he should be punished for the imprisonment for the term which may extend up to two years or with fine which may extend up to twice the amount of cheque or with both.
RELEVANT CASE LAW:
- Vijay Devranna Nayak v. Ryot Sewa Sahakari Bank Ltd. [i]
In this case, the Court held that if the drawer of the cheque gave the specified sum mentioned in the cheque to the payee even after filing the suit, the payee may accept the amount and drop the case.
The court further held that the motive of the sections is to provide the sum which is due to the payee, rather than providing punishment to the defaulter.
- Tomy Jacob Kattikaran v. Thomas Manjaly.[ii]
The Supreme Court held that if it was established that the appellant did not serve a notice on the drawer within the prescribed period under Section 138 of the Negotiable Instrument Act, the acquittal of the drawer is justified.
- M/S Meters and Instruments Private ltd. And Anr. v. Kanchan Mehta.[iii]
The facts of the case are – as the complainant, Kanchan Mehta under Section 138 of the Negotiable and Instrument Act had filed a complaint against the plaintiff on grounds that the plaintiff who was supposed to pay an amount to the defendant on monthly basis according to an existing agreement between them had failed to do so. The company had provided a cheque to the complaint. The same cheque was returned back by the back because of insufficient funds in the account. A legal notice was provided to the company for completion of the payment but the same was not fulfilled. After filing the suit when the company was willing to pay the specified amount mentioned in the Cheque but the same was refused by the defendant.
The Supreme Court held that whatever offence have been laid down under Section 138 of the Negotiable Instrument Act are of civil nature and is a compoundable offence and the motive of these section is to provide the amount due to the payee rather providing punishment to the defaulter.
- Dayawati v. Yogesh Kumar Gosain.[iv]
In this case the Delhi High Court approached a new pathway called Alternative Dispute Resolution Mechanism to decide the offences labeled under Section 138 of the Negotiable Instrument Act which is criminally compoundable by nature.
[i] 2008 2 SCC 305.
[ii] AIR 1998 SC 366.
[iii] 2018 (1) SCC 560.
[iv] 243 (2017) Delhi Law Times 117 (DB).
[ST1]This point is not clear and neither is its language
Written By: Divyanshi Karki
Edited By: Sahil