Case under ni-138

Hello Mr. Ramani,

I have summarised my opinion according to the facts given by you:

1. Regarding your defecne no.1, first of all you have to check whether the individual has attached the authority letter executed for him by the concerned firm, authorising him to file the complaint on behalf of the firm. If he has not attached such authority letter, the case cannot proceed against you and you can challenge the same for dismissal. You may refer to Samrat Shipping Co. Pvt Ltd. Vs. Dolly Geroge. It has explained such circumstances.

2. In case of Section !38, NI act, there is a mandatory rule of service of 15 days notice. Check on that. If the notice is not valid as per cause of action, objection on the same can be raised.

Regards,

Aditya Sharma, Advocate.

Adv Sharma is right in his analysis and suggestion

Ensure the cheque does not bear any conditional order such as "account payee" etc. If it bears, then the instrument is only a payment order without the features of negotiability which does not fall under the purview of NI Act.

The firm is a shop of which the complainant is the proprietor. The personal name of the proprietor and not the name of the business, which was the payee of the cheque has been given as complainant in the complaint. For instance Mr.X is owner of the business named ABC. Cheque was issued to ABC. But Mr. X is the complainant in the complaint and not ABC. Further except for his statement that he was the owner of ABC, he has not attached any proof such as registration or any other thing to show that he was the real owner. His lawyer also says in the demand notice (which itself is contested) that he was sending the notice on behalf of his client, Mr.X and not ABC.

I request other experts to confirm what Mr. Mohan Raj Meghavth says. My cheque was crossed account payee. Nowadays mostly cheques especially those of high value are crossed. Does it mean that all of them are out of Negotiable Instruments Act?

In fact nowadays banks, to protect themselves from claims due to fraud, do not accept endorsements to third party, fourth party etc. Negotiability and holder in due course exist only in theory. 

"The firm is a shop of which the complainant is the proprietor. The personal name of the proprietor and not the name of the business, which was the payee of the cheque has been given as complainant in the complaint. For instance Mr.X is owner of the business named ABC. Cheque was issued to ABC. But Mr. X is the complainant in the complaint and not ABC. Further except for his statement that he was the owner of ABC, he has not attached any proof such as registration or any other thing to show that he was the real owner. His lawyer also says in the demand notice (which itself is contested) that he was sending the notice on behalf of his client, Mr.X and not ABC."

My view is as follows; I presume the cheque does not bear conditional order such as a/c payee etc. In that event, if the cheque is bearer cheque, Mr. X is in order. If the cheque is order cheque, ABC endorsement is required to enable Mr. X in order.

The cheque was an account payee cheque only. It was neither a bearer nor an order cheque.. I think that if the cheque was a bearer cheque or an order cheque Mr.X would have become holder in due course and he should have tried to credit the amount into an account with the bank in his personal name and not into the account of ABC. Am I right?

Since the cheque is marked a/c payee, it tantamounts to a conditional order whereas a cheque as defined under NI Act must contain an unconditional order. "Practice, however long, cannot override the law, and if it be repugnant to statutory provisions, Courts of law will refuse to recognise it and will not allow a breach of the law to be; perpetuated". In the case on hand, NI Act shall not be made applicable. As Dr. Ramani requested, the other experts should throw futher light on this view. 

Rightly concluded by Mr.Meghavath

Meghavat M R,

If I issue a cheque to you with a condition that cheque be deposited in your account only (you are the beneficiary/payee and account payee cheque means just that), then how does the NI act fails ?

The only problem is that this cheque cannot be further transferred, but the transaction between drawer and the payee is perfectly legal and falls under NI Act if cheque gets dishonored. You have to refer to the intent as well.

 In absolute terms what Adv. Trivedi says may be right. But on technical grounds can Negotiable Instrumrnts Act apply to a non-negotiable instrument?

Lakhs of account payee cheques would have been issued and some of them may have come to the court under Section 138 or under any other Section of the same Act. Is there a judgment supporting or against views held by  Mr. Meghavat M. R.? I request the experts.

Mr. Trivedi, when a cheque cannot be transfered or negotiated, how will it find a place in NI Act? Under account payee cheques, the intention of the drawer is that it should not be negotiated and the proceeds are to be credited only into the account of payee named. The primary feature of an NI is, it should be negotiable untill payment and once paid by the drawee the process of negotiation ends. As per the prevailing practice, the account payee cheque sets a condition upon the drawee to credit the proceeds only into the account of named payee as also sets a condition upon the payee to have a bank account to take the proceeds of the cheque and curtails his rights of negotiation. Thus, account payee cheques stipulates conditional order as against to NI Act hence these cheques are only standing or general instructions by the drawer used in the cheque format.

Dr. Ramani. As far as my knowledge is concerned, there is no plea before any court so far on my views directly. The reason is, there are many positive presumptions under NI Act, and the public has highest regard on NI Act and banking activity since era. Therefore, normally we dont doubt any contents on NIs as we go only by its widely acceptable formats. Possibly, some might have marked the account payee wordings on the cheque with good intentions in order to ensure credit to a right person and the practice perpetuated as if it were to be a legal provision. There is a judgment favouring my views as a suplement to main issue. Please follow the link to view it; https://indiankanoon.org/doc/732319/ which has been cited on six occassions. Other than this, I dont thinkany judgment is available in favour or against to my views directly. But, my views are valid if somebody presents at the earliest opportunity.

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Further, in this era of internet, the intention of account payee marking on the cheque has lost its importance as not only itra-bank transactions but also interbank transactions nationwide can be put through on real time just by signing on a debit voucher. Debit voucher is also not required for internet and mobile banking transactions. Atleast now, the public should desist from the practice of account payee marking on cheques and to curb the practice, the courts should refuse to recognise account payee cheques as NIs. This will endeavour to reduce cases under NI Act and purify the enactment. I too request the experts to express their opinion.

Meghavat,

The order you referred clearly overrules your reasoning. Please read the order completely, the Hon court has discussed your point threadbare and set it aside. rather the court says that marking of account payee is irrelevant and does not soil the applicability of law.

You must also understand the logic behind conditionality of cheques, marking it 'account payee' does not make it conditional, its the matter of usage and safety. It is no condition on the fulfilment of obligation by drawer.

Did you try date of drawn ? applicability of S.138(2) ?