138

Circumstances of Dishonour:

The circumstances under which dishonour of cheque takes place or that may contribute to the situation would be irrelevant and are required to be totally ignored.

In Rakesh Nemkumar Porwal v. Narayan Dhondu Joglekar the Bombay High Court held that:

"A clear reading of Section 138 leaves no doubt in our mind that the circumstances under which such a dishonour takes place are required to be totally ignored. In such case, the law only takes cognizance of the fact that the payment has not been forthcoming and it matters little that any of the manifold reasons may have caused that situation."

Five ingredients of the offence under s. 138.

The offence under Sec. 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.

It is not necessary that all the above five acts should have been perpetrated at the same locality. It is possible that each of those five acts could be done at five different localities. But concatenation of all the above five is sine qua non for the completion of the offence under Sec. 138 of the Act.

Drawing of a Cheque

The drawer in payment of a legal liability to discharge the existing debt should have drawn cheque. Therefore any cheque given say by way of gift would not come within the purview of the section. It should be a legally enforceable debt; therefore time barred debt and money-lending activities are beyond its scope.

The words any debt or any other liability appearing in section 138 make it very clear that it is not in respect of any particular debt or liability The presumption which the Court will have to make in all such cases is that there was some debt or liability once a cheque is issued. It will be for the accused to prove the contrary. i.e., there is no debt or any other liability. This of course unless the prosecution restricts itself to a particular liability. The Court shall statutorily make a presumption that the cheques were issued for the liability indicated by the prosecution unless contrary is to be proved.

Presentation of Cheque

The presentation of cheque should be within its validity period. Generally a cheque is valid for six months, but there are cheques whose validity period is restricted to three months etc. The question arises as to which bank the cheque should reach within the validity period, is it the payee to his bank presents that of drawer’s bank or it is enough if the cheque before six months. The courts are divided on the issue. But common sense demands that the cheque should reach the drawer bank within the period of validity as it is that bank that either pays or rejects payment as per the situation existing on that day.

Returning Of the Cheque Unpaid

Lot of controversy had arisen on the issue. What reasons are relevant to hold the drawer of the cheque criminally responsible for bouncing of a cheque. The case laws on the subject have now made the position clear. It is not what the bank says in its return memo that is relevant but the actual position as on the date when the cheque reaches the drawer bank whether there were enough funds in the drawer account to honour the cheque.



The following judgments bring out the correct legal position:

Rakesh Nemkumar Porwal vs. Narayan Dhondu Joglekar (1993 1 CR 268) = (1993 CRI L J 680) = (1993 MH L J 630) = (72 CC 822) DB BOM Any reason for dishonour is an offence.

J. Veeraraghavan v. Lalith Kumar (1995 3 CRI 205) = (1995 83 CC 853) = (1995 CRI L J 1882) MAD DB Any reason for dishonour is an offence. S. 138 of the NI Act Marginal Note stating "Dishonour of cheque for insufficiency etc. of funds in accounts" addition of word "etc." cannot be considered to be an accident.

Disagreeing with Hunasikathimath case (1991 (1) Crimes 226 of Karnataka H.C., who following Punjab and Haryana H.C. in the case of Abdul Samad (1990(@) RCR 335 (P&H) and by a learned single Judge of Bombay H.C. in the case of Om Prakash (1992 (3) Crimes 3006, terming them as rigid and wooden view states:

"there is no other go for us except to agree to disagree with the views expressed herein, in as much as such a view, apart from suffering from a serious infirmity of erroneous interpretation of the relevant provisions of the Act, is to frustrate the very object and purpose for which the relevant provisions had been introduced by the amending Act. It is to be noted that this sort of a view is not negligibly supported by the very title of the Chapter Of penalties in case of dishonour of certain cheques for insufficiency of funds in the accounts (Emphasis supplied.) Equally important it is to note that the marginal note to sec. 138 of the Act states ----------etc. Top of all, such sort of a view, if accepted and followed, the statutory provisions of Chapter 17, introduced by amending Act, would become a dead letter and a non-sense situation would be created, in the sense of posing insurmountable obstacle in the free negotiability and acceptability of the cheques in the fast moving commercial transactions at regional, national and global level, creating a calamitous situation in the commercial world. With respect, we agree fully with the view expressed by the Dn. Bench of BOM. H. C in the case of Rakesh Porwal (1993 Cri LJ 68- (Bom) (DB) of the Kerala H. C in the case of Thomas Verghese (1992 Cri L J 3080) (DB) and a single Judge of the Rajasthan H.C in the case of Pearay Lal Rajendra Kumar P Ltd. (1993 (3) Crimes 395), in as much as such a view had been arrived at in interpretingthe various expressions and words used in the relevant provisions in a meticulous fashion keeping in view the object and reasons for which such a provision had been introduced with the avowed purpose of achieving the object for which it was enacted."

Supreme Court had left certain grey areas by their previous judgments but Three Bench of the Supreme Court has now put to end to this controversy as well. Following is the said judgment:

Modi Cements v. Shri Kunchil Kumar Nandi (1998 2 JT SC 198) Rel. on 1998 (2) ALL MR 433 9[S.C.) = 1998 ALL MR (Cry) 1247)= 100[2] BOM LR 97=AIR 1998 SC 1057; 1998 [3] SCC 249; 1998 CRI LJ 1397; 1998 92 COM CASES 88. / VOL.3.DCTC.232.

Three Bench Decision Of Sc. - Even if notice is issued stopping payment before the payee deposited the cheque in his bank, offence is complete. (Electronics AND Siddharthan cases overruled)

Notice

Notice is a very important stage. It is the non-payment of dishonoured cheque within fifteen days from the receipt of the notice that constitutes an offence. Issuing of a cheque and its dishonour is not an offence. The offence is when the drawer receives a notice from the payee and he fails to pay the dishonoured cheque amount within the grace period of 15 days that constitute an offence. Any demand made after the dishonour of cheque will constitute a notice. It is not necessary that the notice should be sent by Registered Post alone, it could be sent even by fax. It is not necessary that the notice should be in any particular form or style. What is essential is that there should be a demand to pay the dishonoured cheque amount.

It is held by the Supreme Court that while the cheque could be presented at any number of times however there shall be only one Notice. The following case may be noted on the subject:

Sadanandan Bhadran v. Madhavan Sunil Kumar (1998 (4) SCALE SC

Complaint U/s. 138- Maintainability - conditions precedent to applicability of sec. 138 - A cheque can be presented any number of times during the period of its validity- Whether dishonour of the cheque on each occasion of its presentation gives rise to a fresh cause of action within the meaning of Sec. 142(b) of the act - Held No. - A competent court can take cognizance of a written complaint of an offence u/s.138 if it is made within one month of the date on which the cause of action arises under clause c of Sec.142 gives it is a restrictive meaning - it is the failure to make payment within 15 days from date of receipt of notice which will give rise to cause of action - Cause of action within meaning of Sec. 142 (c) arises and can arise only once - impediments which negate concept of successive causes of action- Held.:

On each presentation of the cheque and its dishonour a fresh right and not cause of action - accrues in his favour. He may, therefore, without taking pre-emptory action in exercise of his right under clause (b) of Section 138, go on presenting the cheque so as to enable him to exercise such right at any point of time during the validity of the cheque. But, once he gives a notice under clause (b) of Sec. 138 he forfeits such right for in case of failure of the drawer to pay the money within the stipulated time he would be liable for the offence and the cause of action for filing the complaint will arise. Needless to say, the period of one month for filing the complaint will be reckoned from the day immediately following the day on which the period of fifteen days from the date of the receipt of the notice by the drawer expires.

No action taken on the first notice - cheque presented again - second notice sent - on failure to receive money case filed on the basis of second notice - Acquittal on ground that there could not be more than one cause of action in respect of a single cheque - sustainable - Appellant had earlier taken recourse to clause (b) of Sec. 138 but did not avail of cause of action that arose in his favour u/s. 142(b) of the Act.

Approved: S.K.D. Lakshmanan Fireworks Industries v. K.V.Sivarama Kirshnan (1995 Cr.L.J. 1384)

Overruled: Kumaresan vs. Ammerappa (1991 (1) K.L.T. 893)

Therefore it is essential that the notice should be perfect and in conformity with law. A mistake in the notice will be fatal. It is common mistake committed by most of the payees that as soon as the cheque is returned unpaid to write a letter to the drawer threatening him that in case he does not pay against the dishonoured cheque legal action will be taken etc. Such letter will also be construed as a notice. Since a second notice cannot now be issued on the basis of subsequent dishonour of cheque, due care and caution should be taken while sending the notice on dishonour of cheque.

As stated already that non-payment of cheque amount within the grace period of fifteen days from the date of receipt of the notice constitutes an offence and therefore liable to prosecuted for the criminal