Cheque Bounce Law : Incorrect Interpretation by courts?

The Presumption under Section 139 of Negotiable Instrument Act: The Law

S.139

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, or any debt or other liability.

For easy understanding relevant part of S.118 is also reproduced below.

S.118

Until the contrary is proved, the following presumptions shall be made:-

(a) of consideration-that every negotiable instrument was made or drawn for consideration, and that every such instrument, when it has been accepted, indorsed, negotiated or transferred, was accepted, indorsed, negotiated or transferred for consideration;

Both these presumptions are rebuttable.

The present interpretation: The Incorrect view (Respectful disagreement with prevalent view taken by courts)

That if the signature is admitted or proved, then there is not much onus on the complainant to prove the liability, he need not prove the existence of facts behind the liability, it is up to the accused to disprove the liability. The cheque is taken as the acknowledgement or the proof of legally enforceable debt in support of complainant. If the accused fails to disprove, a thing which is not even proved by complainant, then he is convicted. This interpretation is illegal, absolutely incorrect, and perverse, we all will be embarrassed but we must set it right.

I need not mention any specific order of Hon Apex Court or Hon High Courts across India, but this is how almost all the courts in India are interpreting this section, except Kerala High Court.

The Correct view : The intent of legislature

1. That the cheque is issued to clear any debt or liability, in whole or in part.

2. This presumption is given to Holder only.

Let me explain

A  cheque can be issued by the drawer A to the payee B for following purpose.

1. For any single debt or liability.

2. For  clubbing multiple liabilities on A (of B)

3. For a single liability even though multiple liabilities are existing.

2. For Gift.

3. To disburse a loan.

4. For security.

5. For some advance payment.

6. For some margin money to stock broker.

7. For some Earnest Money to participate in some commercial activity.

8. For Charity.

This list is not exhaustive, but what it says that a cheque can be issued for many purposes, so the legislature has just frozen the purpose of the cheque that it was received by the Holder to clear any debt or liability, or for consideration. If this presumption is not there, then prosecution can never nail the drawer, simply because the drawer can say that he issued this cheque for Gift or for loan or for charity. 

But the courts of India, think that this presumption of  liability is much more than the purpose, this is beyond the jurisdiction of the courts, because legislation does not say so, it is sinful even to think that this presumption is about truthfulness of existence of facts behind the liability. Once the presumption is not about the existence of facts behind the liability, accused cannot be asked to rebut, unless prosecution first proves the liability attached by them.

If we take the amount aspect then it is illegal even to think that there could be any presumption with respect to amount of liability in criminal case. It is against the natural justice and against the well established principle of innocent till proven guilty, to even ask the accused to prove his innocence, so if we interpret that the presumption is with respect to the amount on the cheque, then a considerably heavy onus is present on the accused to disprove it, thus leading to helpless conviction of accused, why helpless, simply because court is bound to draw the presumption, and since accused failed to disprove it, so court is equally helpless but to convict. No one gets convicted for being not able to disprove something, that thing has to be proved first, the well established principle that the prosecution must prove the guilt of accused beyond doubt goes to toss, if we follow the principle that it is accused who has to prove his innocence.

S.20 of the NI Act suggests that if an inchoate instrument is filled up by the possessor, then the amount must be justified by him. It is the different thing that S.20 is not applicable on cheques, simply because cheque is not a stamped instrument. Justification of the amount means he has to prove the existence of facts behind the liability attached.

S.43 of NI Act talks of possibility of failed consideration, even after the instrument is drawn for any money consideration/liability, onus cannot be only on accused to prove the part or full failure of consideration, simply because complainant may not come forward with the liability evidence in his possession.

S.44 of NI Act talks of partial absence of money consideration even after drawn and S.45 of the said act talks of partial failure of non money consideration.

 S.209 of IPC talks of offense for claiming more money then due.

S.208 and S.210 of IPC talks of accepting a decree of more money than due.

So there cannot be any question of any kind of positive presumption with respect to amount of money, the amount of money due has to be proved by the prosecution. In fact as recorded by Hon Apex Court in Mandvi Cooperative bank vs Nimesh Thakur case even the  minister has cleary stated that if the person does not come forward to clear his dues, after his cheque gets dishonored, then he is liable for criminal prosecution. The intent of the parliament is not at all there that the cheque is the conclusive proof of existence of truthful liability and complainant is not required to do anything. It has just stated that the cheque is received for some liability.

The Most astounding argument against the prevalent interpretation

The law commission in its 11th Report on Negotiable Instrument Act as back as 26th Sep 1958 proposed to the legislature an amendment in the definition of word “Holder” as follows, after extensive deliberation..

Page #74 of the said report recommends:

“Holder means payee or endorsee of an instrument, who is in possession of the instrument or the bearer thereof but does not include a beneficial owner claiming through a benamidar.”

This was the definition proposed by the law commission, but honorable legislature in its wisdom apparently did not heed to this proposal by law commission and insisted with the prevalent definition which is applicable even now, that is,

S.8. Holder

The “holder” of a promissory note, bill of exchange or cheque means any person entitled in his own name to the possession thereof and to receive or recover the amount due thereon from the parties thereto.

There is absolutely no jurisdiction with the honorable courts to presume or proceed with the fact that the complainant or the payee is the holder. The courts have unwittingly usurped the role of legislature in this case. Unfortunately the Hon courts feel that the word Holder used in S.139 is a plain vanilla use meaning just the possessor, or complainant or payee.

On the literal footing, the court does not have the right to interpret the law differently if the meaning is clear, once the legislature says that presumption is available to Holder, not to payee, then there is no right with the courts to give benefit of presumption to payee or complainant, without him first proving that he is the Holder. If Hon court starts equating the payee or complainant with Holder, then there was no need for legislature to define holder in S.8 of the NI Act.  As per derived and acceptable definition, complainant is the person who is examined under S.200 CrPC, payee is the person whose name is mentioned in the cheque, he can be a fraudster a prospective offender as per various IPC sections as discussed below, but holder is person who is entitled to receive the cheque in his name for dues. No law gives any power to Hon courts to presume that complainant or payee is the holder, he has to first demonstrate that he is the Holder.

It is sad that courts all over India are mechanically insisting the accused to disprove the liability without even first asking the complainant to prove his entitlement. Shocking part is complainant may not succeed in civil case but he may succeed in getting conviction. What a travesty and murder of fundamental right of liberty. What a comedy that people are facing the risk of being convicted because they failed to disprove the presumption supported liability. The court must understand that the presumption is about whatever liability type the complainant comes forward with, not about the veracity of the liability as such.

Example 1

A and B collude together and A issues the cheque for X Amount, which gets dishonored, B files the complaint under S.138, and without proving the liability gets the benefit of presumption under S.139, now both A and B enact the drama of compounding under S.147 of NI Act, matter closed, but in principle A has violated IPC S.208 and S.210 and B has violated IPC S.209.

So, if rightly B is asked to prove the entitlement to become the Holder, before presumption can be granted to him, surely he would fail and lawfully both A and B can be prosecuted under IPC S.208, S.209 and S.210 if required.

Example 2

There are numerous illustrations in IPC, take for example S.403 of IPC illustration (Misappropriation)

A finds a cheque payable to bearer. He can form no conjecture as to the person who has lost the cheque. But the name of the person, who has drawn the cheque, appears. A knows  that this person can direct him to the person in whose favour the cheque was drawn. A appropriates the cheque without attempting to discover the owner. He is guilty of an offence under this section.

What will happen to A under negotiable Instrument Act, he will deposit the cheque on his name, if gets bounced, then will institute a complaint under S.138 of NI Act, and he will only say that out of friendly loan he got this cheque, since he is not required to prove the liability. The poor drawer has to not only disprove the liability (which even Supreme Court acknowledges that is not a simple task), but he also has to undergo a very rigorous trial because presumption is against him as he is the drawer.

The practical problem is that it is not so simple to prove that the drawer lost the cheque, the another danger is that dishonest drawer, after issuing the cheque for legal liability can rush to the police station and file a cheque lost complaint, thus saving himself from prosecution under S.138.

This all can be avoided if A is required to prove the entitlement first, which is the correct interpretation of the law under S.139, once the entitlement is proved by A, then he becomes the holder and whatever liability he attaches with this cheque shall be presumed by the court, now the drawer cannot simply say that he lost the cheque, he has to prove with cogent evidence.  This again emphasizes the fact that presumption is with respect to whatever liability A attaches in his complaint, nothing more or nothing less. 

Example 3

S.101 of the Indian Evidence Act is reproduced below..

101. Burden of proof.-Whoever desires any Court to give judgment as to any legal right or liability dependent on the existence of facts which he asserts, must prove that those facts exist.

This section signifies that the liability or legal right is made up of existence of many facts. These facts will have to be proved by the complainant to get the benefit of presumption. The presence of dishonored cheque cannot prove the existence of these facts behind the liability. At present if the execution is proved or admitted the Hon courts grant the presumption to the complainant that liability was present, this is in clear violation of above section.

Example 4

Let us consider that A issues a cheque in favor of Share Broker B as margin money for his future trades, this cheque bounces, B after following the statutory procedure files a complaint against A under S.138.  Under this circumstance it will be unfathomable how A can prove that there is no liability on him, poor fellow is stuck, the law or judiciary cannot be so unrealistic or cannot create such harsh condition for accused. The right interpretation of S.139, that is if B is able to bring on record the evidence or existence of facts, with respect to the liability, then B becomes the Holder and he gets the presumption that yes cheque was indeed issued to clear this liability only. Now A is required to either disprove that in fact the facts as brought on record by A are false or he can also prove by cogent evidence that the cheque was not issued to clear the liability but was issued as a margin money for trades.

Without positive evidence with respect to existence of facts creating liability on drawer, the presumption cannot be given to complainant and drawer cannot be asked to disprove the liability.

Example 5

IPC S.415 C (Illustration)

(h) A intentionally deceives Z into a belief that A has performed A's part of a contract made with Z, which he has not performed, and There by dishonestly induces Z to pay money.  A cheats.

Suppose Z, innocently issues a cheque fully trusting A, but just before the cheque is encashed, he realizes and ensures its dishonor by stop payment, Z is still doomed, because A will say that for so and so contract (or for so and so friendly loan or some other ghost story) Z issued the cheque, and A gets the presumption benefit. Now expecting Z to first prove that there was no liability or consideration failed is again a very harsh condition, But if A is asked to prove the liability first (the facts constituting the liability), then A becomes the holder and he gets the benefit, once A becomes the holder, now Z has to disprove the case of A, Z cannot simply say without legally admissible evidence that cheque was issued for some Gift or for some other liability or there is no liability. This is perfectly valid interpretation of law and violates nothing.

Example 6

463. Forgery.--Whoever makes any false document or part of a Document with intent to cause damage or injury, to the public or to any person, or to support any claim or title, or to cause any person to part with property, or to enter into any express or implied contract, or with intent to commit fraud or that fraud may be committed, commits forgery……..

(c) A picks up a cheque on a banker signed by B, payable to bearer, but without any sum having been inserted in the cheque. A fraudulently fills up the cheque by inserting the sum of ten thousand rupees. A commits forgery.

This is quite in conflict with respect to present interpretation of presumption under S.139.  In case the cheque gets dishonored, A is just required to proceed with a complaint case under S.138 of NI Act, and he can state any cock and bull story about liability, now the poor drawer has to prove that he has bloody no business with A. How can B do? At the best B can be termed as negligent person in securing his property, which is no crime. But if rightly “A” is asked to prove the entitlement first by bringing some evidence, then he becomes the Holder and gets the presumption that in fact this cheque was issued by B to clear this liability only, once A proves the liability which he asserts in his complaint, then B cannot take any defense which cannot be proved by him, he has to either disprove the liability or he has to prove that in fact the said cheque was lost and not issued by him voluntarily, or given to clear some other liability. If A fails the the hon court may prosecute A for forgery.

Example 7

S.72 of The Indian Contract Act

72. Liability of person to whom money is paid or thing delivered by mistake or under coercion.-A person to whom money has been paid, or anything delivered, by mistake or under coercion, must repay or return it.

If the money is paid by cheque, the present interpretation of S.139 may make such person, the king, rendering the above section at least partially useless. Why partially because it is proved beyond doubt that by nature not all human beings are honest creatures. How can the person who issued the payment in the form of cheque prove that he issued the cheque by mistake? This ridiculous situation will not arise if the claimant is asked to come forward with the proof of his story, then he becomes the Holder and gets the benefit of presumption.

Illustration under S.72 of the Indian Contract Act

(a) A and B jointly owe 100 rupees to C. A alone pays the amount to C, and B, not knowing this fact, pays 100 rupees over again to C. C is bound to repay the amount to B.

Now let us presume that transactions between B to C took place by cheque, then before C could deposit the mistaken cheque of B to Bank, the drawer B gives the stop payment instruction. Now C, an ordinary fallible fellow, after following statutory requirement, files a complaint under S.138 of NI Act and lo behold he gets the benefit of presumption, the presumption is further re-enforced as honest B, also admits that he issued the cheque by mistake, but unfortunately he has no means to prove the mistake, as C has come forward with some other cock and bull story of friendly loan. But rightly if C is asked to prove the liability arising out of his claim, then things will be as per law, fair and just.

Example 8

S.59 of The Indian Contract Act

59. Application of payment where debt to be discharged is indicated.-Where a debtor, owing several distinct debts to one person, makes a payment to him, either with express intimation, or under circumstances implying that the payment is to be applied to the discharge of some particular debt, the payment, if accepted, must be applied accordingly.

No other section can explain the need of presumption under S.139, then this. In general in criminal trials, accused is not required to do anything, it is the prosecution which is required to prove the guilt to hilt, that is without any shreds of doubt. Now if there are multiple debts, if presumption is absent, then that nagging doubt will remain, that the cheque was issued for debt A not for debt B as alleged by complainant. Accused will maintain his silence, and it will be very onerous now on complainant to prove that the cheque was indeed issued for debt B only as claimed by him and not for debt A. So the presumption is with respect to distinctness of the debt, whatever Debt A or Debt B or Debt C as alleged, but the presumption is not about existence and truthfulness of that debt. That debt must be proved by complainant then only he becomes the holder and gets the presumption, now accused cannot say that it was issued for some other debt X, Y Z.

A further prodding of S.118 or S.139 confirms that nowhere the amount is part of presumption, the S.118 presumption is that the cheque is drawn for some consideration, the S.139 adds to whom this presumption is given, both these sections do not talk about amount part.

Then what does this S.139/S.118 talk about ? What is this presumption all about?

To understand it better we will further see what will happen in the court in absence of S.118/S.139. In absence of this presumption, the accused can simply say that the cheque was issued as a Gift or present on the birthday, accused is safe on a quite forceful defense. In this case prosecution will have one additional burden of proving that the cheque was issued for some consideration/debt. Because it cannot be ruled out beyond doubt that even while having a bonafide liability a drawer cannot still issue a cheque to such person for Gift on his birthday. So prosecution can never show that the cheque was not issued against Gift but it was issued against liability, thus making the entire statute dud.

So, by introducing S.139 the legislature just frozen one aspect in favor of prosecution, that is whatever type of liability prosecution attaches to the cheque, it shall be presumed that the cheque was drawn to clear that liability,  but then the amount and the facts behind the liability must be proved by the prosecution. So in all such cases purpose of cheque is fixed, complainant will always come with this averment that cheque was issued to clear some existing liability, the presumption just freezes the liability attached to the cheque. The accused is at liberty to prove that the cheque was issued as Gift or for some different liability or the liability attached by prosecution stands fully or partially settled, and then the case fails.

Example 9

Suppose X has taken Scooter Loan, Car Loan and Home Loan from Y. Now X has settled his Scooter Loan and Car Loan but failed to repay the Home Loan and Y used a cheque lying with him and gets the same dishonored and files the complaint.

In this case, Y shall be required

1. To prove the liability dues on account of Home Loan.

2. Once the same is proved, the court shall presume that the cheque was issued to settle this liability against Home Loan.

The accused shall be at liberty to prove any or all of followings:

1. The cheque was issued for Scooter Loan or Car Loan, not for home Loan. If he succeeds, he is free.

2. The accused can prove that the liability amount as proved by complainant is less than what is stated on the cheque and asked. He is free.

3. Even otherwise accused can prove that the cheque was issued six months prior to date of dishonor.

What accused cannot say without evidence is that it was issued for car Loan or scooter loan, but nonetheless it does not give any presumption to the complainant on the truthfulness of the loan amount, this aspects will have to be proved by the prosecution, court will just grant the presumption to the type of liability asserted by the prosecution, that too when the complainant proves himself to be the Holder by proving the entitlement. Court cannot ask the accused, that, complainant has stated that you had issued the cheque to settle this outstanding dues against Home Loan, so disprove it. How absurd and anti fair play? Accused can only be asked to disprove once it is proved by complainant.

Example 10

Another tremendously simple example

X, a dishonest trader, promises to sell, some commodity to Y, but insists for advance payment. Y, a simple and trustworthy man, issues the cheque but does not receive the material but realizes the dishonest intent of X and gives stop payment instruction to his Bank. On dishonor, X, after statutory formalities approaches the court and files the complaint against Y, stating that for the supply of so and so material he has received the cheque, and the court grants him the presumption and now asks the Y to  disprove. How can Y do so? I challenge any or all of the Hon judges and magistrates to come forward and disprove the claim of X, in the light of present understanding of presumption under S.139. It cannot be done. But if rightly X is asked to prove the liability and the amount attached with it, then Y has no escape till he proves the contrary.

Example 11

Another simple example, any state or central government or PSU cheque gets misplaced in connivance with some dishonest employee, this cheque goes in the hands of some unscrupulous person A and gets dishonored on account of signature mismatch (now brought under S.138), then it is ridiculous to ask such institution to disprove the only presumption supported claim of  A. But rightly if A is asked to prove the liability and he proves it, then even government will not have any problem.

The statute merely gives presumption to the specific purpose of the cheque, the presumption just links the cheque with type of liability averred by complainant, nothing more, nothing less. One cannot be convicted without proof of liability in toto. It will be nothing but shear injustice.

The people can say that this kind of proposed interpretation will defeat the very purpose of statue. Such people are vastly mistaken for the simple reason, where is the need and jurisdiction for alternative interpretation when the statute itself says that presumption is available to holder only, not to any one else. After the enactment of S.138 onwards, only assistance is given to the complainant that the cheque is issued for some legally enforceable debt or liability, the accused cannot say when confronted with established liability that he issued the cheque for gift or for some other liability. As stated earlier if the S.139 is not present, then even if complainant proves the liability, then also accused can claim that the cheque was issued for Gift.  Then it becomes very difficult for prosecution to disprove this, simply because of existence of Gift cheque cannot be ruled out even when liability exists. 

Moreover can this right interpretation frustrate the intention of parliament? Parliament has not given any presumption whatsoever to payee or complainant, the presumption is given to Holder, which is much more than possessor. Neither the presumption is given under S.139 for the truthfulness of amount. And in fact no substantial benefit goes to accused if complainant is first asked to prove his entitlement for whatever liability he asserts.  Once the complainant proves the entitlement, the existence of facts behind liability as per S.101 of The Indian Evidence Act, he gets the presumption that yes, the cheque was issued for this liability only.

Summary

So the presumption under S.139 is available to the complainant or payee, if he can demonstrate that he is the Holder, for that he has to prove the facts behind the existence of liability first.

Other apparent orders by Hon SC, possibly driven with the intent to tighten the situation against drawers, but we must realize that in order to give respectability to an instrument called cheque, millions of people cannot be made accused, and moreover the prevalent criminal jurisprudence cannot be taken lightly or cannot be given a short shrift in the zeal to curb the menace called cheque bounce.

1. The competence of complainant: MMTC order is questionable.

It violates S.200 of The Indian Contract Act. The Hon court when rules that the jurist company can send any body subsequently with proper authorization, even if no authorization was present at the time of complaint, straight away violates S.200 of The Indian Contract Act.

2. Date of drawn of PDC

It cannot be the date which a PDC bears. It is the date on which the PDC was made or delivered. The Supreme Court order that a PDC is a Bill of Exchange till the date which it bears and becomes the cheque on that date, I am sure, is decided without considering S.68 of The Indian Stamp Act. I will not comment about illegality of a PDC by referring to S.68 of The Indian Stamp Act, but this section and S.46 of the NI Act, conclusively defines the date of drawn, so S.138(a) the date of dishonor within 6 months of date of drawn must be seen in this light. Supreme Court has unwittingly taken away this defense from drawer. S.46 alone must be honored in conjunction with S.138(a) in absence of any new consent by drawer.

3. General Power of Attorney aspect

Small 3 section Act, has thousands of orders by Hon SC and various High Courts, still confusion. All confusion can be settled if courts clarify as follows:

1. Anybody can authorize anybody to be the complainant, the person behind the complaint. This person can give evidence in his personal capacity.

2. To give evidence on behalf of some natural person (like individual or proprietorship firm), then such person must have a valid registered GPA at the time of transaction. Nobody can be given GPA/SPA at the time of filing of case to give evidence on behalf of some natural person if they had no GPA for the transaction. That natural person must give evidence for himself in absence of any GPA to carry out those transactions.

3. For non natural complainants like companies or association of people, anybody can be authorized under a simple registered SPA to become the complainant, along with few witnesses who have witnessed the transactions.

4. Jurisdiction Aspect

This calls for re-look simply because accused are coming from Kanyakumari to just short of Kashmir. In the present computer era, a big company who has head office and legal team situated in Mumbai, but carrying out local transactions with the local sales office in some remote corner of India, can harass the drawer with Mumbai jurisdiction.

5. Compounding order

The Hon SC has fixed some arbitrary compounding charges for various stages including appeal stage at SC level. Once the accused is convicted, it cannot be compounded. Compounding can only be during any stage before the final order is pronounced by the trial court. A convicted person, who is about to go to jail, can easily, be blackmailed by complainant to do almost anything. It is also not fair to accept the convict’s proposal of compounding at SC level, if complainant objects.

6. Cheque issued at the time of Loan disbursement

a. Must fail instantly if date of receipt of cheque by payee is more than 6 months from the date of dishonor.

It is abundantly evident that such cheques are being used as collateral security due to apparent harshness of S.138. A person who gives loan must be prudent enough to take some proper collateral security in the form of gold or property as mortgage; he cannot use the cheque as the security.

7. Banks or NBFC filing cases even though they have mortgage property under their control

This is illegal, if they have a property of drawer as mortgaged to them, then as per law, they must re claim their dues by the proper recovery mechanism. They cannot arm twist the drawer while holding his asset in their pocket. 

8. Un-registered partnership firm

They cannot file the civil suit, but they can certainly file the case under S.138 of NI Act?  After all a cheque bounce is a kind of regulatory offense, quasi civil and moreover why this indulgence is given to unregistered partnership firm? They must register, they must pay revenue to the government, they must be transparent in their constitution, then only they be allowed to file any case arising out of regulatory offense.

9. And Adalat Prasad

I wonder if the Hon trial court has any power to send the reference to Hon Session court or to Hon High court for quashing of complaint after cognizance is taken and it is found suo moto or otherwise that in fact cognizance was mistaken. It is harsh and unjust that a person who is mistakenly summoned must rush to  HC under S.482 CrPC, he should be allowed to test the waters at trial court level by filing discharge application, which if the trial court magistrate finds reasonable then he can refer to session court or to HC as per law for quash. A similar order of jurisdictional High Court or the Hon Apex court can be cited for discharge.

Idea is to increase the acceptability of cheque, not to send people to jail. Dishonest drawer must fear, but equally  important is that dishonest possessor must also fear.

The author can be contacted at

R.Trivedi

advocate.dma@gmail.com or

extreme-analysis.blogspot.in