Author: Ujjwal Anand Symbiosis Law School, Pune
Author: Aaditya Mishra Symbiosis Law School, Pune
Editor: Sri Hari The West Bengal National University of Juridical Sciences, Kolkata
The Negotiable Instruments Act, 1881(NIA) is among one of the statutes implemented during colonial rule, and still, most of it continues unaltered. The NIA deal with the negotiable instruments, particularly cheques, promissory notes, bills of exchanges, etc. These negotiable instruments are commonly adopted for post date payments/settlements in the business realm. A cheque is widely used for immediate or post-dated payment by every common man. Post-dated cheques are generally provided to lend some surety to the payee, on the concerned amount. Hence, it becomes essential that the drawer of the cheque does not take advantage of the situation and breaches the trust of the payee. Chapter XVII of the act comprises sections 138 to 142, it entrusts certainty in the efficient working of financial institutions and validates the negotiable instruments engaged in commercial transactions. A dishonored instrument instinctively falls under civil liability, but to dissuade and provide a remedy against the defaulters, the criminal penalty was inoculated in 1988 by an amendment. Section 138 of the Act deals with the occurrences when a cheque used for deferred payment is dishonored. A case under section 138 can be initiated for the same. However, there are particular conditions to comply with the specified section-
The cheque should have been drawn for repayment, or discharge of any other liability.
The cheque should be presented in the bank within six months, of its issuance.
The cheque must be returned by the bank unpaid i.e. dishonored, either due to insufficient funds or the demanded amount transcends the amount to be paid from that account by an agreement made with that bank. In the case of Modi Cements Limited v. Kuchil Kumar Nandi a three-Judge Bench of the Supreme Court brandished that even if a notice is granted to stop the payment of money to the bank before the payee has produced the cheque in the bank, it will be considered a crime. Once the cheque is handed out by the drawer, it is imperative that simply because notice is issued to the bank by the drawer, it will not forgo action under section 138. Thus, the defense under a stringent understanding of “insufficiency of funds” stands infirm.
The payee renders a demand notice of the amount in writing, to the drawer within 30 days of the receipt of the dishonored cheque.
The drawer does not pay the demanded amount within 15 days of receiving the notice.
An offense under Sec 138 is non-cognizable (police officer cannot arrest without an arrest warrant) and bailable.
THE PROCEDURE UNDER SECTION 138
A formal notice has to be issued to the drawer by registered mail, with all requisite details, within 30 days of dishonor of cheque. The drawer is offered 15 days to pay the amount, from receipt of the notice. In case the drawer repays the amount within the given period, the matter is deemed to be settled. Conversely, if the drawer fails to repay the amount, a criminal complaint can be filed in the magistrate court, within the jurisdiction. However, the complainant should be filed within 30 days from the date of lapse of the 15-day notice.
The complainant or his authorized representative should appear in the court and furnish the required details for the filing of the case. Thereon, being satisfied with the complaint the court will issue a summon to the accused.
If the accused forgoes without appearing in the court even after the summons being issued, the court may issue a bailable warrant against him. Even after this if the complaint does not appear in the court, a non-bailable warrant may be issued against him.
The accused may procure a bail bond, on his appearance, then after his plea shall be recorded in the court. In case the accused pleads guilty, the matter will be taken forward for the punishment. In cases where the accused pleads not guilty, he will be served with a copy of the complaint.
The complainant can propose his evidence by way of affidavit and has to submit the relevant documentation supporting his complaint.
The complainant will be cross-examined by the defendant or his advocate/s. The defendant will be provided with a chance to lead his evidence. He can submit documents and witnesses, supporting his claim. On the submission of relevant documents, the complainant can cross-examine the documents or witnesses yielded by the accused.
In the later stage after the arguments, the court will pass judgment. However, the aggrieved party after the judgment can fill an appeal accordingly.
Cheques have been leading apparatus in today’s daily commercial transaction; the cases related to section 138 should be disposed of as early as possible. The number of amendments and case laws has been induced in recent times for speedy disposal of such cases so that the commercial cycle is not hindered. In the case of Dayawati v. Yogesh Gosain, the question was raised whether the offense committed under section 138 can be solved by arbitration. The Court, after referring different statutory provisions, said that although neither the CRPC nor the NI Act procures any special provision, which empowers the criminal court to propose any case to arbitration. The court yet can refer a case under section 138 to arbitration, as it is compoundable. Such criminally compoundable cases are permissible under Section 320 of Cr.P.C for compromise outside the court. The Court leaned on Section 19 (5) of the Legal Services Authorization Act, 1987, which bestows jurisdiction in the Lok Adalat to resolve cases pending before the Court. Additionally, the Court also reconsidered the precedent of Gian Singh and Kaushalya Devi, saying that criminal acts of check dishonesty can also be directed for arbitration by lower courts. It was also mentioned that the offense committed under section 138, is different from other criminal acts and is at the disposal of a civil wrong which is specified by the criminal meanings. Despite, when an agreement is extended after arbitration and is confirmed by a magistrate, the odds of a breach cannot be avoided. Thus, the court provides a security mechanism and in cases of failure by the accused, the magistrate will pass an order under section 431 read with section 421 of the Cr.P.C, to recover the amount owed by the accused in the same manner as the fine will be recuperated. Also, the accused may be punished for civil contempt.
The offenses under the ambit of sec 138 are considered as a civil wrong and the burden of proof shifts on to the complainant. The proceeding under this act is to be tried summarily until there are some variations under chapter XVII of NIA. Section 258 of Cr.P.C is also applicable to such proceedings, wherein the magistrate is satisfied that the amount about the cheque has been discharged. The intent of the act is compensation for like any other commercial oriented law. Therefore compounding should be stimulated in such cases, but in such cases where it is found the aggrieved is not receiving suitable compensation, it will be tried in the court of law. The court has ample provisions under Cr.P.C to direct the accused to pay the compensation (section 357) concerning the amount, so imprisonment sentence of further than a year is not necessary for all the cases. Therefore, the magistrates can use their discretion to not conduct the trial summarily. In Meters and Instruments Ltd. v. Kanchan Mehta the court considered the use of modern technologies to facilitate the quick disposal of cases under Section 138 of the NI Act. Furthermore, it was noted that the use of modern technology is not merely for paperless courts but moreover to curtail the congestion of courts.
RECENT AMENDMENTS & DEVELOPMENTS
An amendment was inducted on 1st September 2018 to the Act. In cases when a drawer pleads not guilty, the court can instruct the drawer of the cheque to pay a specific amount to the payee for interim relief, however, the directed amount should be less than 20% of the claimed amount. The period for paying the relief amount is 60 days. Additionally, an extension of 30 days can be granted by the court. In cases, when the accused is acquitted the interim amount has to be returned to the drawer of the cheque along with interest. The amendment further states that if the accused is convicted in the trail and intends to appeal in the appellate court. The appellate court may order the drawer to pay a certain deposit at the time of appeal and the amount should not be less than 20% of the claim awarded by Magistrate court.
The Negotiable Instruments Act, 1881 deals with all provisions that are an essential part of modern business transactions due to advancements in banking, trading, and different commercial sectors. The Act furnishes for the liabilities and obligations of both the drawer and the payee. The sections 138 & 141 of the Act confines provisions for the offense of dishonor of cheques by individual and company. The NIA is vital for protecting the creditor’s belief and faith in systems. The uncertainty in the disposal of such cases related to provisions under the act is the matter of concern, which has to be ruled by further developments in legislation, like setting up of a dedicated board or commission for the same. As it affects the day to day transactions the court fee for initiating a complaint should be waived off, however, if the claims are found to be untrue heavy penalty should be imposed on the complainant.
 (1998) 3 SCC 249.
 243 (2017) Delhi Law Times 117 (DB), decided on October 17, 2017.
 (2012) 10 SCC 303.
 (2011) 4 SCC 593.
 (2018) 1 SCC 560.
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