srihari (finance manager) 26 October 2009

NI Act - Security cheque, Present again etc

Very interesting discussion with NI Act judgment.

Recently i heard some interesting points in this regard. Pl give your valuable opinions in this matter.

a) A cheque for Rs.30 lakhs is issued against the supply of material. The cost of the material is Rs.35 lakhs. The buyer (it is a private limited company) requested to hold the cheque and promised to remit the money by RTGS since 'the outstation cheque' will take 15 to 20 days for collection (Buyer and seller are from different states). Cheque is properly prepared and dates and amount was also filled by the seller (it is not the blank cheque).

b) Since there was no remittance till 5 months (Cheque valid period is 6 months from the date of the chque), the seller presented the cheque in the bank. The same was informed to the buyer by way of Fax & Email.

c) After 10 days of the presentation of the cheque, seller has the email communication from the buyer that the cheque has not et reached his bank & it wan not dishonored by them.

d) Subsequently, the cheque was returned unpaid and reached back to the seller just 10 days prior to the validity period of the cheque (i.e 6 months). But strangely, the bank has endorsed the reason for the cheque bounce as ’FUNDS’ - EFFECTS NOT CLEARED, PRESENT AGAIN'.

e) Since the validity period is about to end, it could not be represented.

f) It was confirmed by the seller that there are no funds in the bank account and so many other cheques were also returned by the bank with the same endorsement and no funds were also expected (i.e no cheques under collection etc).

g) Now the counsel for the accused ( buyer) has taken the stand as follows : 1) Cheque return will not come under the provisions of negotiable instruments act since it was returned with the endorsement to represent and the cheque is not dishonored for the reason ' insufficient funds in the account' . 2) The cheque was issued only as a security 3)The account is not finalized and it has to be reconciled.

h) But the seller is able to prove the debt with out any ambiguity. The seller and buyer have been in communication trough emails and seller is able to prove the debt with clear evidence of physical original documents along with the circumstantial evidence by email correspondence.

Please discuss and give the best possible ideas

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12 Replies

Sameer (Buisness) 26 October 2009

Dear Friend,

You are right but still you can iniciate procedings against him, and prove your case in evidence stage you can also submit all the facts before the court on affidavit,

PJANARDHANA REDDY (ADVOCATE & DIRECTOR) 26 October 2009

DEAR FRIEND,

THE REASON WHAT EVER IT MAY BE THE RETURN UNPAID CHEQUE-- DUE TO INSUFFICIENT FUNDS - IS DRAWN-- HENCE 138 ATTRACTS....

IN EVIDENCE THE ACCUSED HAS TO PROVE THE REBUTAL PRESSUMPTION- THE ONUS LIES ON HIM ONLY.

THE CIRCUMSTANCES OF EVIDENCE/WITNESS PROVE THE ACCUSED IS AT THE MOTIVE OF AVOIDING THE LEGALLY ENFORCEBLE DEBT WANTENLY , HE CANNOT ESCAPE THE PUNISHMENT UNDER THE SEC.138.

Sanjeev Kuchhal (Publishers) 30 October 2009

I think that "PRESENT AGAIN" is just an option given to the party and it will not effect the main reason that funds were insufficient when cheque was presented.

Sanjeev Kuchhal (Publishers) 30 October 2009

Regarding the defence of cheque being given as a security I would quote the Bombay High Court Judgment in the case of Balagi Agencies Pvt. Ltd. Vs. Vilas Bagi of Bagi Packages Ltd. & anr. reported in 2008 (7) LJSOFT (URC) 8. It has been held that

"Security is given not as a piece of paper to be retained by the creditor but to be enforced when the debtor fails to pay the amount _ Security is of no use which cannot be enforced _ Though the cheque was issued as security but demand to clear the debt was made and upon failure the security was enforced _ Complainant by following the correct method has enforced the security given towards the liability which the accused owed to the Complainant _ Cannot be said that the provisions of Section 138 were not attracted."

(Guest)

Sanjeev ji - Security is certainly not a piece of paper and the cheque can be used in civil proceedings. However with due respect to the Bombay High Court judgement, I would say in respect of security cheque s.138 would not be attracted especially in view of the judgement of the Hon'ble Supreme court in the case of Krishna Janardan Bhat which give primacy as to the purpose for which the cheque was drawn or received. To attract 138 cheque should have been drawn or received for discharge of debt or obligation. In case of Security cheque at the time of drawing or receipt of the cheque there was no debt which was liable for "discharge". Operating word is "discharge". Discharge means satisfy. Since at the time of drawing or receiving "security cheque" debt was not liable or due for discharge, it cannot be said the cheque was drawn or received in discharge. Of course the security cheque was drawn with reference to or in relation to a debt of liability but it cannot be said to be drawn in "discharge" and if that is correct s.138 would not be attracted at all. I hold this view with conviction despite number of supreme court and the high judgement to the contrary with regard to "security cheque"

PJANARDHANA REDDY (ADVOCATE & DIRECTOR) 30 October 2009

DEAR EXPERTS,

PLEASE GO THROUGH THE INTERESTING CASE LAW OF KRISHNA JANARDHAN BHAT

Attached File : 1 1 janardhan bhat case.rar downloaded: 595 times

Amrut Patil (DM) 22 February 2010

Dear Sanjeevji,

I am unable to get the judgement of the case mentioned below

Balagi Agencies Pvt. Ltd. Vs. Vilas Bagi of Bagi Packages Ltd. & anr. reported in 2008 (7) LJSOFT (URC) 8.

Can you help me out with the case nos.

thanks

Amrut

(Guest)

For all those who have participated on this forum. I am attaching the latest judgement of the Bombay High Court which is upholding the view articulated by me on this page earlier. In fact Balagi Agencies Pvt. Ltd. is also dischussed in the said judgement. Following is the judgement. I have already uploaded it in the file section. It will appear after moderation.

IN THE HIGH COURT OF JUDICATURE AT BOMBAY

BENCH AT AURANGABAD

CRIMINAL APPLICATION NO. 898 OF 2009

Ramkrishna Urban Cooperative

Credit .. Applicant

Society Ltd., Maliwada, Ahmednagar,

through Authorised Signatory,

Shri Chhagan Tukaram Raut,

Age. 36 years, Occ. Service,

R/o. Mutha Chambers, Maliwada,

Ahmednagar.

Versus

Shri Rajendra Bhagchand Warma .. Respondent

Age 38 years, Occ. Business,

R/o. 2044, Daware Galli,

Near Vithal Mandir, Ahmednagar.

Shri L.B. Pallod, Advocate for the applicant.

Shri J.M. Murkute, Advocate for sole respondent.

CORAM : P.R. BORKAR,J.

RESERVED ON : 03.02.2010

PRONOUNCED ON : 16.02.2010

Sanjeev Kuchhal (Publishers) 01 March 2010

Dear Mr. Amrut Patil,

Please find the text file of the Judgment attached herewith.

Attached File : 42 42 ni act.txt downloaded: 425 times

srihari (finance manager) 02 March 2010

Dear Anil Kumar Menon

Can you please provode the link for the judgement in '

IN THE HIGH COURT OF JUDICATURE AT BOMBAY

BENCH AT AURANGABAD

CRIMINAL APPLICATION NO. 898 OF 2009

I am unable to find out the location

Thanks & regards

Srihari P

(Guest)

IT IS ALREADY UPLOADED IN THE FILE SECTION OF LCI UNDER THE HEADING SECURITY CHEQUE DOES NOT ATTRACT S.138

R Trivedi (advocate.dma@gmail.com) 29 October 2011

There are many contradictory orders on Security Cheque, the fact is what is a security cheque. How to classify a cheque as normal and security. The courts take different views on this aspect, some of the possible qulaifiers are..

1. Blank Cheque issued to Laon sanctioning FIs/Banks/Individuals.

2. Cheque issued in advance for contractual obligations/terms.

3. Security depoist given to some institution etc.

4. Cheque given in advance for supply of some material: May not fall into security.

5. Cheque given in advance for supply of material which takes place regularly: In this case if some other on account payment has been made while the cheque in question remains with supplier unused, then yes it can be classified as security cheque.

6. Some other agreement where the nature of the cheque is specified as security.