Cheques are very convenient instruments used in business transactions. To promote the efficacy of the banking operations and to enhance credibility of cheques, Section 138 to Section 147 were incorporated in Negotiable Instruments Act, 1881 (the Act).

The NI Act makes the drawer of cheque liable for penalties in case of dishonour of cheques due to insufficiency of funds or for the reason that it exceeds the arrangements made by the drawer. The NI Act also contains sufficient safeguards to protect the drawer of cheques as he is given an opportunity to make good the payment of dishonoured cheque when a notice demanding payment is served on him by the payee.

This article analysis’s the effectiveness or lack of effectiveness of the cheque bouncing provisions. It is necessary to refer to the provisions of the NI Act, with regard to cheque bouncing provisions for better appreciation of the main thrust of this article.

Commission of offence & procedure for filing of complaint:

An offence under the NI Act shall be deemed to have been committed, if the following conditions are satisfied (Section 138):

Cheque must have been drawn by a person (the drawer) in favour of a payee on his bank account for making payment of either in whole or partial discharge of a legally enforceable debt.

Cheque must have been returned by the banker to the payee or holder in due course due to insufficient balance in the account of the drawer or it exceeds the arrangement he had with the bank.

Additional conditions:

Cheque must be presented within six months from the date of cheque or its validity period whichever is earlier. (Cheque validity period is now reduced to three months)

The payee or holder in due course must demand payment of the cheque amount by written notice within 15 days of receipt of notice.

Such notice must be issued within 30 days from the date of receipt of memo of dishonour from bank and the drawer of cheque neglects or fails to pay demanded sum within 15 days from the date of receipt of the notice.

Presumption in favour of holder

According to Section 139 of Act, there is a presumption in favour of the holder of cheque that he received the cheque in discharge of a legally enforceable whole debt or part of the debt, unless contrary is   proved.

Thus onus is thrust on the drawer of the cheque to prove  that cheque is not issued in discharge of legally enforceable debt.

When cause of action arises for filing a complaint?

Once the drawer fails to make payment of demanded sum, cause of action for filing complaint under NI Act arises on expiry of the notice period and remains till 30 days. Complaint should be filed within 30 days from the date of cause of action as per Section 142 of NI Act. In case of delay, this Section gives power to the magistrate to condone the delay, if sufficient cause is shown by the complainant.

Recent trend of apex court judgments

Recently, the Supreme Court in the case of MSR Leathers vs S. Palaniappan & Anr, reversed its earlier judgment in Sadanandan Bhadran vs Madhavan Sunil Kumara (1998) SCC514 and held that a payee or holder of a cheque can now issue a statutory notice to the drawer each time the cheque is dishonoured and institute proceedings on the basis of a second or successive statutory notice as well. This was intended to favour the payee as he can overcome 30 days limitation period with each presentation.

Moreover, if cheque is honoured on subsequent presentation, this prevents filing of complaint and leads to less number of 138 cases. In the case of Ms. Laxmi Dyechem vs State of Gujarat & Ors Leathers vs Palaniappan division bench of apex court set aside the verdict of Gujarat High Court which had held that criminal proceedings for dishonoring of cheque can be initiated only when the cheque is dishonoured because of lack of sufficient amount in the bank account and not in case where a cheque is returned due to mismatch of signature of account holder.

Cognizance of offence

Section 142 of Act mandates that no court shall take cognizance of the offence unless a complaint in writing is given by the payee or holder in due course as the case may be and such complaint has to be made within one month from the date of cause of action.

A look at Amendments to NI Act

Now let us examine how the amendments made to NI Act with the insertion of Sections 143 to 147(effective from 06.02.2003) brought strength to deal with certain deficiencies noticed in the Act. Salient features of amendments are as follows:

Time limit for issuance of notice for demanding payment of dishonoured cheque amount is increased from 15 days to 30 days from the date of receipt of banker’s memo of dishonour. (Section 138}

Imprisonment term has been extended up to two years in place of one year. Similarly the amount of fine is increased to double the amount of the cheque dishonoured. {Section 138}

It recognised serving of summons by post/courier approved by session’s court for speedy trial/ prosecution. In case of refusal to receive summon, it shall be deemed to have been duly served on certification by the authorised person of postal department or courier for this purpose. {Section 144}.

The most important of all is that evidence of complainant may be given by way of an affidavit and such an evidence can be a basis for issuance of summons. Discretion has been given to court to accept affidavit on evidence and only on request of the accused summon. {Section 145}

Bankers memo can be accepted as prima facie evidence for cognizance of offence {Section 146}

Another notable feature is that Section 147 permits compounding of the offence which means an escape route is provided for avoiding imprisonment even during the trial.

It is clear from the above amendments that the main thrust of these amendments was to provide for a speedy and time bound trial. Courts have been given power to try the offence by summary trial for expeditious disposal of 138 cases and Section 143 states that endeavour shall be made to complete the trial within six months from the date of the complaint.If you appreciate this annswer please convey my forum thanks by clicking thanks.