section 138 of negotiable instruments act

YOU ARE WRONG SUPREME COURT GUIDELINES ARE ALL CHQS MUST BE IN ONE PLACE AND ONE TRAIL PERTAINING TO SAME ACCUSED .

i have problem.  For bounced cheque a notice was issued in time.  Accused received but did not choose to reply. The AD was received on 13.4.2008 but the complain case was filed on 24.7.2008 and cognizance was taken after condoning the delay.  Can the delay be condone on the ground of illness of the complainant?

THE GROUND FOR DELAY MUST BE STRONG TO BELIEVE BY  THE COURT. BUT OTHER SIDE TAKES OBJECTION.AS PER 138.

138. Dishonour of cheque for insufficiency, etc., of funds in the accounts

Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall without prejudice to any other provisions of this Act, be punished with imprisonment for ²["a term which may extend to two year"], or with fine which may extend to twice the amount of the cheque, or with both:

Provided that nothing contained in this section shall apply unless-

(a) The cheque has been presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier.

(b) The payee or the holder induce course of the cheque, as the case may be, makes a demand for the payment of the said amount of money by giving a notice, in writing, to the drawer, of the cheque, ³["within thirty days"] of the receipt of information by him from the bank regarding the return of the cheques as unpaid, and

(c) The drawer of such cheque fails to make the payment of the said amount of money to the payee or, as the case may be, to the holder in due course of the cheque, within fifteen days of the receipt of the said notice. 

Explanation: For the purpose of this section, "debt or other liability" means a legally enforceable debt or other liability].

OBJECTS AND REASONS OF AMENDING ACT OF 2002

The Negotiable Instruments Act, 1881 was amended by the Banking, Public Financial Institutions and Negotiable Instruments Laws (Amendment) Act, 1988 wherein a new Chapter XVII was incorporated for penalties in case of dishonour of cheques due fo insufficiency of funds in the account of the drawer of the cheque. These provisions were incorporated with a view to encourage the culture of use of cheques and enhancing the credibility of the instrument. The existing provisions in the Negotiable Instruments Act, 1881, namely, sections 138 to 142 in Chapter XVII have been found deficient in dealing with dishonour of cheques, Not only the punishment provided in the Act has proved to be inadequate, the procedure prescribed for the Courts to deal with such matters has been found to be cumbersome. The Courts are unable to dispose of such cases expeditiously in a time bound manner in view of the procedure contained in the Act- (Para 1)

Keeping in view the recommendations of the Standing Committee on Finance and other representations, it has been decided to bring out, inter alia, the following amendments in the Negotiable Instruments, Act, 1881, namely:-

(i) to increase the punishment as prescribed under the Act from one year to two years;

(ii) to increase the period for issue of notice by the payee to the drawer from 15 days to 30 days; (Para 4)

1. I

Mr learned advocate Reddy the party says that thre are  ten cheques have  bounced so normally the cheques must be having defferent dates so defferent cause of action.

Your Complaint is maintanable. Since the cause of action is same. if the cause of action differs, it will get failure.

bye

mahe19_60@hotmail.com

Dear Sir, PJANARDHANA REDDY.

Thnks for your good post. DOnt rely on ADV-SKJ

Reeta Latkan ............. Ur 138 complaint of 10 cheques which relate to one single transaction is maintainable ........... No harm in that .......... There would have been trouble if the cheques were related to different transactions 

 

Kousik Ananda Guru .......... Magistrate has discretion to condone delay ........... it is his decision whether to condone or not for the reasons cited in the delay condonation application .............. maybe in ur case he felt the reason of sickness to be a good reason for condoning the delay ............

following is a  recent  judgement...what  is its  implication  on the  cheques  given  as collateral   security  for  the  loans  by  finance  companies/banks/private  banks??

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

( 2 )

J U D G M E N T :1.

This is an application for leave to file appeal

against the order of acquittal passed by the learned Judicial

Magistrate, First Class, Court No.1, Ahmednagar in S.T.C. No.

960 of 2008, decided on 21.01.2009, whereby the respondent is

acquitted of offence punishable under section 138 of the

Negotiable Instruments Act.

2. Brief facts giving rise to this application may be

stated as below:.

Present applicant has filed private complaint

alleging that the complainant is a cooperative

society

registered under the Maharashtra Cooperative

Societies Act,

1960. It is doing banking business. The respondent for his

business had taken loan of Rs. 2,00,000/(

Rupees Two Lakhs

Only) on 18.10.2000 and for satisfaction of the loan, he

executed promissory note, mortgage deed, guarantee deed etc.

The respondent has agreed to repay amount from time to time

by installments. Accordingly, cheque No. 500276 of Rs.

( 3 )

87,209/drawn

on Ahmednagar Merchants Cooperative

Bank

Ltd., Branch – Dalmandai, Ahmednagar, was issued. The cheque

was dated 24.01.2008. When the complainant/applicant

presented the cheque, it was dishonoured on the ground of

insufficiency of funds. Thereafter, on 11.02.2008 a notice

was issued by the complainant/applicant, but inspite of the

same, the amount was not paid by the respondent and therefore

the complaint was filed.

3. The learned Magistrate after considering the

evidence led by both sides, passed the order of acquittal

acquitting the respondent of offence punishable under section

138 of the Negotiable Instruments Act, mainly on three

grounds. Firstly, it is held that as many as ten blank

cheques were obtained by the applicant bank while

sanctioning/disbursing loan as security and one of them was

used in the present case; secondly, there is bar of

limitation; and thirdly, amounts paid by the respondent, in

respect of which he has produced receipts in defence, were

not reflected in the extract of account produced on record

and as such it is not proved that the amount of Rs. 89,209/was

due on the date of the cheque. As against said decision

( 4 )

of acquittal, the applicant/complainant wishes to file the

appeal and therefore he filed this application under section

378 (4) of the Code of Criminal Procedure for leave to file

appeal.

4. Heard Adv. Shri L.B. Pallod for the applicant and

Adv. Shri J.M. Murkute for the respondent.

5. The Trial Court in para 12 onwards has considered

the evidence on record. The respondent/accused in his

affidavit in lieu of examinationinchief

has stated that he

had repaid the entire loan in the year 2005 and he possessed

receipts thereof. He also stated that while granting loan,

ten blank cheques signed by him were obtained. No cheque was

issued by him of amount due towards loan. It is observed

that in the cross*xamination

said evidence has remained

unshaken and the suggestions put on behalf of the complainant

were denied. The Court also came to a conclusion in para 13

that the evidence of the accused/respondent was reliable. It

is proved that he had given 10 blank signed cheques to the

complainant. In order to substantiate this, he has examined

P.W.3Ashok

Jindam, who was officer of the Ahmednagar

( 5 )

Merchants Cooperative

Bank. Said witness has stated that

cheque book containing cheque No. 500276 was given to the

accused/respondent on 04.10.2000. He proved document Exh.46.

He also produced account extract at Exh.47. This evidence

was also unshaken in cross*xamination.

The witness was

found reliable witness by the Trial Court. The document at

Exh.46 shows that the cheque book bearing cheque in question

was issued to the respondent/accused on 04.10.2000. It was

cheque book contained cheque Nos. 500276 to 500300.

Thereafter on 13.11.2001 another cheque book was issued. On

22.02.2005 third cheque book was issued to the respondent.

The account extract at Exh.47 clearly shows that the cheques

bearing Nos. 500288 to 500299 were used till 24.09.2001 and

thereafter cheques issued in the second cheque book bearing

cheque Nos. 783491 and 783498 were used till 28.02.2005.

Thereafter, cheques from third cheque book bearing Nos.

823492 to 823500 were used till 07.03.2008. So, it was

observed by the learned Magistrate that all this clearly

indicated that the accused/respondent was not using cheques

in the year 2008 from the cheque book in which cheque No.

500276 was included. So, all these circumstances supported

the case of the respondent that the respondent had issued 10

( 6 )

blank cheques signed by him to the complainant in the year

2000 while sanctioning the loan.

6. The learned advocate Shri Pallod argued that even

accepting that this to be so, still it will not affect the

case of the complainant. He relied upon the case of

Purushottam Maniklal Gandhi V/s. Manohar K. Deshmukh, 2007

(2) Bom.C.R. (Cri) 38. In that case Single Bench of this

Court has observed in para 18 that it is open to a person to

sign and deliver a blank or incomplete cheque and it is

equally open for the holder to fill up blanks and specify the

amount therein. This does not amount to any alteration in

the cheque, since the cheque was not initially issued for any

different specified sum which was changed. In para 19 of the

said case it is observed that when a drawer of a cheque

delivers a signed cheque, he obviously gives an authority to

the holder to put a date of his choice. So, it is argued

that merely because blank cheques were given by the

respondent to the complainant, that does not mean that said

cheques are not valid. Moreover, so far as limitation is

concerned, in the same case it is observed that limitation

would start from the date which is (put) on the cheque. The

( 7 )

learned advocate also referred to para 22 of the said case

and argued that even for the time barred debt when there is

fresh promise to pay, it would be legally enforceable debt.

7. Another case cited is the case of Single Bench of

this Court in Balagi Agencies Pvt. Ltd, V/s. Vilas Bagi of

Bagi Packers Ltd., and Anr., 2008 ALL MR (CRI) 2230. Therein

the drawer of cheque delivered a signed cheque. It is held

that thereby he gave authority to the holder to put a date of

his choice. As per Section 20 of the Negotiable Instruments

Act, the holder had authority to fill in the date and

limitation had to be reckoned from that date and therefore it

cannot be said that the instrument had become time barred

being presented beyond the period of six months from the date

when it was given. However, in both these cases of

Purushottam and Balagi Agencies Pvt. Ltd., amounts had become

due before cheques were issued. So, there was existing

liability to pay when the cheques were issued.

8. Section 138 of the Negotiable Instruments Act is as

follows:“

138. Dishonour of cheque for

( 8 )

insufficiency, etc., of funds in the account. Where

any cheque drawn by a person on an account

maintained by him with a banker for payment of any

amount of money to another person from out of that

account for the discharge, in whole or in part, of

any debt or other liability, is returned by the

bank unpaid, either because of the amount of money

standing to the credit of that account is

insufficient to honour the cheque or that it

exceeds the amount arranged to be paid from that

account by an agreement made with that bank, such

person shall be deemed to have committed an offence

and shall, without prejudice to any other provision

of this Act, be punished with imprisonment for a

term which may be extended to two years, or with

fine which may extend to twice the amount of the

cheque, or with both :

Provided that nothing contained in this

section shall apply unless (

a) the cheque has been presented to the bank

within a period of six months from the date on

which it is drawn or within the period of its

validity, whichever is earlier;

(b) the payee or the holder in due course of

the cheque, as the case may be, makes a demand for

the payment of the said amount of money by giving a

notice in writing, to the drawer of the cheque,

within thirty days of the receipt of information by

him from the bank regarding the return of the

cheque as unpaid; and

(c) the drawer of such cheque fails to make

the payment of the said amount of money to the

payee or as the case may be, to the holder in due

course of the cheque within fifteen days of the

receipt of the said notice.

Explanation – For the purposes of this

section, ‘debt or other liability’ means a legally

enforceable debt or other liability.”

( 9 )

9. It is argued that the cheque drawn must be for the

discharge, in whole or in part, of any debt or other

liability. So the debt or other liability must be in

existence when the cheque, whether blank or post dated was

issued. In this case the accusedrespondent

issued the

cheque in question as security for loan before loan amount

was disbursed. So, cheque was not towards any existing debt

or liability. In case of loan transaction, borrower is in

need of money and therefore he borrows loan amount from some

one with understanding that the loan amount would be repaid

in lumpsum on a future date or in installments from

particular future date onwards periodically, with or without

interest. It is not transaction of loan, if the amount is to

be repaid the moment it is paid to borrower. So, provisions

of Section 138 of the Negotiable Instruments Act are not

attracted.

10. We may consider object and purpose for introducing

amendment to the Negotiable Instruments Act, 1981 by

Amendment Act, 1988, as stated in the Amendment Act and

various authorities to facilitate correct interpretation of

( 10 )

the provisions. The object and reasons clause of the bill

which introduced the Amending Act of 1988 would show that the

new Chapter XVII was incorporated specifically to “enhance

the acceptability of cheques in settlement of liabilities by

making the drawer liable for penalties in case of bouncing of

cheques due to insufficiency of funds in the accounts or for

the reason that it exceeds the arrangements made by the

drawer, with adequate safeguards to prevent harassment of

honest drawers.

11. In Vinod Shivappa V/s. Nanda Beledappa, AIR 2008

S.C.2279, it is observed that Section 138 of the Act was

enacted to punish those unscrupulous persons who purported to

discharge their liability by issuing cheques without really

intending to do so, which was demonstrated by the fact that

there was no sufficient balance in the account to discharge

the liability. With a view to avoid unnecessary prosecution

of an honest drawer of a cheque, or to give an opportunity to

the drawer to make amends, the proviso to S. 138 provides

that after dishonour of the cheque, the payee or the holder

of the cheque in due course must give a written notice to the

drawer to make good the payment. Cl. (c) of proviso to S.

( 11 )

138 provides that the section shall not apply unless the

drawer of the cheque fails to make the payment within 15 days

of the receipt of the said notice. The proviso is meant to

protect honest drawers whose cheques may have been

dishonoured for the fault of others, or who may have

genuinely wanted to fulfil their promise but on account of

inadvertence or negligence failed to make necessary

arrangements for the payment of the cheque. The law treats

such lapses induced by inadvertence or negligence to be

pardonable, provided the drawer after notice makes amends and

pays the amount within the prescribed period.

12. It is observed in Mosaraf Hossain Khan V/s.

Bhagheeratha Engg. Ltd., AIR 2006 SC 128 : (2006) 3 SCC 658 :

2006 Cr.L.J.1683 that the object of the provision of S. 138

of the Negotiable Instruments Act is that for proper and

smooth functioning of business transaction in particular, use

of cheques as negotiable instruments would primarily depend

upon the integrity and honesty of the parties. It was

noticed that cheques used to be issued as a device inter alia

for defrauding the creditors and stalling the payments.

Dishonour of cheque by the bank causes incalculable loss,

( 12 )

injury and inconvenience to the payee and the entire

credibility of the business transactions within and outside

the country suffers a serious set back. Remedy available in

a Civil Court is a long drawn process and an unscrupulous

drawer normally takes various pleas to defeat the genuine

claim of the payee.

13. In Electronics Trade & Technology Development

Corpn. Ltd. V/s. Indian Technologists & Engineers

(Electronics) (P) Ltd., (1996) 2 SCC 739 it is observed that

if we consider the provisions of Sections 138 to 147 and

their object, it is clear that object of section 138 is to

inculcate faith in the efficacy of banking operations and

credibility in transacting business on negotiable

instruments. Despite civil remedy, section 138 intended to

prevent dishonesty on the part of drawer of negotiable

instrument to draw cheque without sufficient funds in his

account maintained by him in a bank and induce the payee or

holder in due course to act upon it. Same view is taken in

the case of Goa Plast (P) Ltd. V/s. Chico Ursula D’Souza

(2003) 3 SCC 232.

( 13 )

14. Thus the object of the amendment and introduction

of Chapter XVII in the Negotiable Instruments Act by Act of

1988 was mainly to encourage all major transactions including

commercial or business transactions through cheques and to

enforce credibility and acceptability of cheques in

settlement of liability in general. Encouragement of payment

by cheques/credit cards/debit cards rather than by cash is

necessary for healthy economy. That also brings in

transparency in transactions and discourages creation of

black or unaccounted money through evasion of taxes or other

malpractices. So, provisions like Section 138 of Negotiable

Instruments Act are salutary to give reliability, credibility

and acceptability of negotiable instruments like cheques in

daily life. However, the object was not to provide effective

and speedy remedy for recovery of loans. Law makers must not

have intended or imagined that money lenders or banks would

obtain blank or post dated cheques while

sanctioning/disbursing loans as securities and would use them

to make debtors/borrowers to repay loan under threat of

prosecution and punishment under Section 138 of the

Negotiable Instruments Act. So, it is doubtful if provisions

of Section 138 of the Negotiable Instruments Act would be

( 14 )

attracted to a case in which a blank or post dated cheque is

obtained by a bank or money lender before or while

sanctioning or disbursing loan amount as security for the

loan.

15. In following cases bouncing of cheques which were

given as security for loan amounts were held not to attract

provisions of Section 138 of the Negotiable Instruments

Act :1)

Anand Urban Cooperative

Credit Society V/s.

Vipin Lalchand Mehta & Anr., 2008 (2) Bom.C.R.

(Cri.) 65 : 2008 ALL M.R. (Cri) 2266.

2) Goa Handicrafts, Rural & Small Scale Industries

Development Corporation Ltd., V/s. Samudra

Ropes Pvt. Ltd. & Anr., 2005 ALL MR (Cri)

2643 : 2006 (1) Bom.C.R. (Cri) 157.

3) Hanumant R. Naik V/s. Ajit Harmalkar, 2008 (1)

Bom.C.R. (Cri) 432 : 2008 ALL MR (Cri) 486.

4) M.S. Narayana Menon Alias Mani V/s. State of

Kerala and Anr., (2006) 6 S.C.C.39.

5) Karekar Finance Pvt. Ltd., V/s. Shri M.N.

Bashyam & Anr., 2007 ALL MR (Cri) 3073 : 2008

(3) B.C. 98.

6) Jayantilal Parmar V/s. Vaishali Farne (2007)

2 Bom.C.R. (Cri) 403.

7) Om Shri Finance & Investment Corporation V/s.

Mohemmed Sheikh (2007) 11 LJSOFT (URC) 24.

( 15 )

16. In Anand Urban Cooperative

Credit Society V/s.

Vipin Mehta, 2008 (2) Bom.C.R. (Cri) 65, trial court held

that 5 blank cheques were obtained towards security for

repayment of loan as in this case. This Court refused to

interfere with the order of acquittal.

17. In Karekar Finance Pvt. Ltd. V/s. Shri M.N. Bashyam

& Anr., 2007 ALL MR (Cri) 3073, it is held that though the

accused had taken loan from the complainant, he proved that

the blank cheque was issued by him towards collateral

security for loan and interest. It is held that the cheque

cannot be said to be issued towards discharge of a debt and

same would not come under purview of Section 138 of the

Negotiable Instruments Act.

18. Similarly, in the case of Jayantilal Parmar V/s.

Vaishali Farne (2007) 2 Bom.C.R. (Cri) 403, three blank

cheques were given as security for loan amount. Two cheques

were encashed and third was bounced. The Single Bench of

this Court refused to interfere with the order of acquittal.

Facts of said case are similar to the facts in case before

us.

( 16 )

19. The facts involved in Om Shri Finance & Investment

Corporation V/s. Mohemmed Sheikh (2007) 11 LJSOFT (URC) 24,

are also similar to facts of our case. The Court declined to

interfere with the order of acquittal.

20. The Trial Court considered that though cheque was

issued on or before 18.10.2000, the date put thereon is

24.01.2008. No doubt there is authority to put date so also

the amount, as it was a blank cheque. But the question

raised is whether provisions under Section 138 of the

Negotiable Instruments Act should be made applicable to a

blank cheque issued as security for loan after period of 7 to

8 years.

21. In the present case blank cheques were issued prior

to disbursement of loan as a collateral security for loan

which was sanctioned. In such case there was no existing

debt or liability when the cheque is issued. So, in the

facts and circumstances of the case, the case does not fall

within four corners of offence punishable under section 138

of the Negotiable Instruments Act. Of course such defence is

( 17 )

available against payee and not holder in due course.

22. In this case, we cannot say that debt was time

barred on the date appearing on cheque i.e. 24.01.2008 in

view of various payments allegedly made by the respondent

which renewed period of limitation under Section 19 of the

Limitation Act from time to time. To that extent I differ

from the Trial Court.

23. Lastly the Trial Court has observed that the

respondentaccused

in his evidence on record has produced

receipts issued by the complainant bank at Exh. 61 to 75. It

is case of the respondent/accused that he had repaid entire

loan in the year 2005. In para 17 it is observed that the

account extract produced by complainant bank at Exh.25 was

produced up to 12.12.2003. Inspite of sufficient opportunity,

the accounts extract of subsequent period up to the date of

cheque (which was 24.01.2008) was not produced. Obviously

the payment made after 12.12.2003 did not appear in the

account extract produced. In these circumstances, the Court

held that it is not proved that on the date appearing on the

cheque or the the date on which the cheque was presented,

( 18 )

amount of Rs. 87,200/was

outstanding. There was omission

to prove said fact inspite of record being available with the

complainant and therefore adverse inference was drawn. It is

held that it is not proved that on the date of cheque amount

of Rs. 87,209/was

outstanding and therefore provisions of

section 138 of the Negotiable Instruments Act are not

attracted. We cannot find fault with this ground for

acquittal.

24. Here I may rely on Pawan Enterprises V/s. Satish H.

Verma, 2003 Bom.C.R. (Cri). 474, In that case a colour T.V.

was purchased on 4th April, 1998 by the respondent from the

applicant for total consideration of Rs. 22,760/.

Rs.

5000/were

paid in cash and post dated cheque of Rs.

17,745/was

issued on 08.01.1998. The respondent was

supposed to pay balance amount in installment or in

accordance with post dated cheque. When the cheque was

presented on 19.01.1998 what was due was only Rs. 10,975/,

though on 08.01.1998, the date of issuing post dated cheque

for Rs. 17,745/was

due. It was held that the cheque issued

was for much higher amount than was actually due and

therefore it cannot be said that the cheque was issued

( 19 )

towards debt or other liability within the meaning of Section

139, and offence under section 138 of the Negotiable

Instruments Act is not committed. In said case the Court

distinguished between ‘liability’ and ‘security’ and observed

that both cannot be mixed or acted upon simultaneously. In

para 6 it is observed that if the act of a person in

discharge of liability is not done, then security comes in

picture and if the act in discharge of a liability is

performed then security would not have any legal force.

25. After having considered all aspects, in my opinion,

this is not a case where leave to file appeal against order

of acquittal can be granted. Hence, the Criminal Application

is dismissed.

[P.R. BORKAR,J.]

snk/2010/FEB10/cra898.09

Original Judgement has already been posted by Mr Reddy on this site.

PLS FIND THE ATTACHED NEAT COPY OF ABOVE JUDGMENT- 

Thanku very much to Mr.Reddy.

Your judgment has hepled me a lot to improve myself, I seek your good coordination in future also.

Regards

 

BASAVARAJ.R

What is the difference between guarantee and security?

READ INDIAN CONTRACT ACT 1872

I need the citation as well as the respective Judgment(s) of the Supreme court regarding for every dishonered cheque seperate complaint has to be filed.