Complaints Under Section 138, N.I. Act : Practice and Procedure

Through this write up, a statutory and judicial light is focused on the different aspects of procedure and provisions set up in cases related to Dishonour of Cheques as enshrined in Chapter XVII decoding form Section 138 to Section 148 of The Negotiable Instruments Act, 1881.

Introduction and objective :-

Negotiable Instrument act was enacted in India much before its independence and therefore most of provisions contained in it are based on the English statute. After independence in 1947, certain modifications were made in Act in order to stringent the provisions of the Act and in that sequence, an attempt is made out by the Indian legislature to incorporate chapter XVII namely “Of Penalties in case of Dishonour of certain cheques for insufficiency of Funds in the Accounts” contains Section 138 to 142 with an objective to encourage the trend of use of cheques and to increase the credibility of cheques transactions by making the offence. further to fill the loop wholes in the existing law, the legislature again put the Chapter under consideration and introduced new provisions from section 143-147 and some other changes. Again in 2018 Section 143-A and 148 has also been inserted for effecting some interim compensation measures to discourage the drawer form any frivolous defence.

What is Cheque?

In today’s era of Banking, the term ‘Cheque’ not new to anyone. The statute (Section 6 of NI Act ) consider it as ‘a bill of exchange drawn on a specified banker and not expressed to be payable otherwise then on demand and it includes the electronic image of a truncated cheque and a cheque in the electronic form’.

Legal Frame Work of Dishonour of Cheque

1. Statutory aspects and its Legal Position

2. Procedure for filing a Complaint under Section 138, NI Act

3. Documents to be annexed with the Complaint

4. Recent Developments : Landmark Judgements

Statutory Aspects:

Section 138: An offence committed under Section 138 is a non-cognizable offence (a case in which a police officer cannot arrest the accused without an arrest warrant). Also, it is a bailable offence. The offence under this section will be completed with following 5 components:

1. Drawing of Cheque by the drawer for the discharge of debt or other liability

2. Presentation of Cheque within 6 months form the date on which it is drawn

3. Dishonour of cheque and return unpaid by the drawee bank

4. Statutory Notice within 30 days of receipt of information from the bank regarding the return of cheque as unpaid to the drawer demanding payment of cheque amount

5. Failure to make payment by the drawer within 15 days from the date of receipt of Notice; 

Punishment : 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.

Legal Position :

• A Payment in furtherance to agreement to sell is a payment made in pursuance of a duly enforceable debt or liability for the purpose Section 138 of the Act. [Ripudaman Singh vs. Balkrishana :(2019) 4 SCC 767 :2019(2) Civ. C C 292 (SC)]
• Statutory Notice is required to be served within 30 days of receipt of information by the drawee form the bank regarding return of cheque as unpaid and where Legal Notice for demand is not issued within said time- Complaint to be dismissed. [Kamlesh Kumar vs. State of Bihar and Anr. : (2014) 2 SCC 424]
• Instruction of ‘ Stop Payment’ issued to the bank by the drawer could be sufficient to make the accused liable for the offence punishable under section 138, Negotiable Instrument Act. [Pulsive Technologies Pvt. Ltd. vs. State of Gujarat: (2014) 13 SCC 18]

Section 139 stipulates the to hold the presumption in favour of holder of cheque that he holds the cheque for the discharge of any debt or liability and Section 140 bars certain defence to the drawer that he has no reason to believe about dishonouring of cheque on presentation.

Legal Position:

Section 140 clarifies that it will not be available as a defence to the drawer that he had no reason to believe, when he issued the cheque, that it would be dishonoured. The offence is committed no sooner the drawee bank returns the cheque unpaid. [2014(9) SCC 129 (supra)]

Section 141 deals with the offence by the company and provides for the liability of every officer who at the time when offence was committed, was in charge of, and was responsible to, company for the conduct of the offence and simultaneously protects those who are bonafide officers without knowledge or does not hold day to day affairs.

Legal Position :

• Dishonour of Cheque : Offence by the Company- /complaint filed against the director of company without Company being arraigned as an accused is not maintainable. [Himanshu vs. B. Shivamurthy and anr. : (2019) 3 SCC 797]
• A director of a company who was not in charge of and was not responsible for the conduct of the business of the company at the relevant time, will not be liable for a criminal offence under the provisions. [National Small Industries Corpn. Ltd. v. Harmeet Singh Paintal: (2010) 3 SCC 330]

Section 142 provides for appropriate forum and strict timelines for initiating the complaint in the Court of law against the drawer for the offence u/s 138 of the Act. The following are key points :

1. Written complaint by the Payee within 1 month from the date of cause of action arises,
2. Forum : Metropolitan Magistrate or a Judicial Magistrate of First Class

Legal Position :

• Pre-mature Complaint filed before expiry of 15 days from date of service of Notice -Not a valid Complaint. (2007) 14 SCC 753 ; 2019(3) CCC 262 (All.)
• For the purpose of calculating period of one month, which is prescribed under Section 142(b) of N.I. Act, period has to be reckoned by excluding date on which cause of action arose. [Econ Antri Ltd. vs. Rom industries Ltd. and anr. : (2014) 11 SCC 769 ]

Section 143 provides for Summary Trial of the cases under section 138 NI Act and Section 144 deals with the mode of service of summons on the accused.

Section 145 provides a flexible approach by the legislature to submit the evidence on affidavit and Section 146 validates the Banker’s slip or memo with official mark stating that Cheque has been dishonoured as prima facie evidence.

Section 147 makes the offences under the act be compoundable offences and Section 148 as inserted by amendment act of 2018 provides for deposition of at least 20% of fine or compensation awarded against the drawer if he goes for appeal before appropriate forum.

Legal Position :

Though compounding requires consent of both parties, even in absence of such consent, the court, in the interests of justice, on being satisfied that the complainant has been duly compensated, can in its discretion close the proceedings and discharge the accused. [ Meters and Instruments (P) Ltd. vs. Kanchan Mehta : (2018) 1 SCC 560]

Procedure for Filing of Complaint:

After complying all the timelines as provided under Section 138 of the NI act, the Compliant is required to be made to the Concerned Magistrate within 30 days from the day on which the period of 15 days for payment of money by the drawer expires. The compliant is required to be signed by the Complainant himself or duly authorised Power of attorney holder or in case of Company through any person or director duly authorised by the board in this behalf.

In case of more than one cheque as part payment of one transaction, Single Complaint maintainable upto four (4) cheques in case of all cheques are related with same transaction. [2019(4) Civ. CC 508 All.]

On the day complaint is presented, if the complaint is accompanied by affidavit of complainant, the concerned magistrate shall scrutinise the complaint & documents and if commission of offence is made out, take cognizance & direct issuance of summons of accused, against whom case is made out. This order is popularly known as Summoning Order. Summons will be issued to accused in accordance with the section 144 of the act as explained above.

If summon served upon the accused and the accused appeared in the court, the Court shall ask him to furnish bail bond to ensure his attendance during trail (as the offence under Section 138 is a bailable offence ) and notice issued to the Accused in terms of section 251 of the Cr.PC. Then trail of the case starts.

Documents to be annexed with the Complaint:

1. One pager Performa as prescribed under the NI Act to be appended as the cover note on the Complaint;

2. Original Cheque;

3. Original Cheque Return Memo issued by the Bank;

4. Copy of Legal Notice

5. Original Postal Receipt;

6. Copy of Acknowledgement of due service (if any) [Track report may be attached] ;

7. Proof of lawful debt or liability (if any);

8. Authorisation letter / Power of Attorney / Board Resolution (in case of Company or Partnership Firm) 

9. An affidavit in support of the compliant verifying its particulars;

10. An Evidence Affidavit under Section 200 of Code of Criminal Procedure of complainant.

Recent Development :- Landmark Judgments

A) Dashrath Rupsingh Rothod vs. State of Maharastra : 2014(9) SCC 129

This is one of the landmark judgement for the cases of dishonour of cheque under section 138 and interprets the territorial jurisdiction of Court to entertain Complaint and covers the entire journey of Judicial Precedents of Apex Court in past related to the question of territorial jurisdiction, wherein the full Bench of Apex Court held that the case has to be initiated at the place where the branch of the bank on which the cheque was drawn is located. The bench also said: “In this analysis, we hold that the place, situs or venue of judicial inquiry and trial of the offence must logically be restricted to where the drawee bank is located.”

B) M/s Meters and Instruments Pvt. Ltd. vs. Kanchan Mehta : (2018) 1 SCC 560

While considering the speedy disposal of Cheque bounce case the Hon’ble Apex Court held that the trials under Chapter XVII of the Act are expected normally to be summary trial. Once the complaint is filed which is accompanied by the dishonoured cheque and the bank’s slip and the affidavit, the Court ought to issue summons. The service of summons can be by post/e-mail/courier and ought to be properly monitored. The summons ought to indicate that the accused could make specified payment by deposit in a particular account before the specified date and inform the court and the complainant by e-mail. In such a situation, he may not be required to appear if the court is satisfied that the payment has not been duly made and if the complainant has no valid objection. If the accused is required to appear, his statement ought to be recorded forthwith and the case fixed for defence evidence, unless complainant’s witnesses are recalled for examination.

Conclusion :

In the last, all it can be concluded that in light of growing business transactions, the importance of speedy and timely disposal of cheque bounce cases are one of the major concern before the judiciary as the purpose of timely payment of money to payee and enacting the remedy for him would fail if accused succeed in prolonging these cases. The legislature has already introduced some major amendments by introducing sections 143-A and 148 in the act and thereby providing for deposition of upto 20% interim Compensation by the Drawer/ Accused if he pleads not guilty.

Reference:

1. An Analytical Study of the Provisions relating to Dishonour of Cheques under Chapter XVII of the Negotiable Instrument Act, 1881 by Anjana Dave and Dr. R V Mehta [PBR International: V 7, Issue 5, Nov. 2014]

2. Dishonour of Cheque [S. 138 NI Act and allied sections] by Tejaswi Pandit [SCC Online Blog]

{The author i.e. Narendra Mohan is a Practicing Lawyer and can be reached at (E) [email protected] and (M) 9717998362}