Author: Shivanjali Mane
This paper makes an attempt to delineate numerous aspects of Section 138 of the Negotiable Instruments Act. Section 138 is that the principal section coping with dishonour of cheques. It delves into the history of its institution, with the explanation for its necessary enactment and moves to clarify the procedures and method as arranged out by the statute still because the call of the Hon’ble metropolis court in Rajesh Agarwal & Others v State & Another. Seeking to line out clarity on the points of law on relevant territorial jurisdiction for filing a grievance below Section 138 numerous selections of the Courts area unit started out, finally final with the newest development in law, The Negotiable Instruments (Amendment) Ordinance, 2015.
The term “Negotiation” could be essentially implies something quite the assertion that the paper possesses the negotiable quality. Typically speaking, it applies to any written statement given as security, typically for the payment of cash, which can be transferred by endorsement or delivery, vesting within the party to whom it’s transferred a legal title on that he will support a suit in his name. The term signifies that the note or paper writing to that it’s applied, possesses the requisites of negotiability.
A legal instrument is one, therefore, that once transferred by delivery or by endorsement and delivery, passes to the transferee an honest title to payment in step with its tenor and regardless of the title of the transferrer, provided he’s genuine holder for price by surprise of any defect attaching to the instrument or within the title of the transferor; in different words, the principle nemo audiotape quod non habit doesn’t apply, it’s the part of negotiability that build a contract supported upon paper therefore adopted for circulation totally different in several particulars from different contracts notable to law. The early origin of those instruments could be a matter of speculation among text writers. In primitive societies, the system of bills of exchange couldn’t, of course, have existed; for foremost, cash that it represents wasn’t fictitious until long when, and second, the art of writing was an issue unknown to them. Once the system of bartering became inconvenient, a typical medium of exchange associate degreed associate degree instrument of a simply convertible character was found necessary, and cash came into use. It would have had its humble origin, however once the utility of cash was found, it had been ne’er lost sight of
HISTORY AND EVOLUTION OF THE ACT IN PURSUANCE WITH SECTION 138, NEGOTIABLE INSTRUMENTS ACT, 1881
Negotiable Instruments are utilized in industrial world for a protracted amount of your time joined of the convenient modes of transferring cash. Development in banking sector and with the gap of latest branches, cheque became one in every of the favourite official document. A cheque is associate acknowledged bill of exchange that’s without delay accepted in role of payment of cash and it’s negotiable. However, by the autumn of ethical standards, even these Negotiable Instruments like cheques issued, started losing their quality by not being honoured on presentment. it absolutely was found that associate action within the civil court for assortment of the income of official document sort of a cheque tarried, therefore defeating the terribly purpose of recognizing a official document as a speedy vehicle of commerce.3
Consequently, the Section four of the Banking, Public money establishments and Negotiable Instruments Laws (Amendment) Act, 1988, inserted Chapter XVII within the Negotiable Instruments Act, 1881 (hereinafter the “NI Act”). The statement of object and reasons connected to the Bill explaining the provisions of the accessorial chapter browse as follows:
“This clause [clause (4) of The Bill] inserts a new Chapter XVII in the Negotiable Instruments Act, 1881. The provisions contained in the new chapter provide that where a cheque drawn by a person for the discharge of any liability is returned by the bank unpaid for the insufficiency of funds standing to the credit of the account on which he cheque was drawn or for the reason that it exceeds the arrangements made by the drawer of the cheque with the bankers for that account, the drawer of the cheque shall be deemed to have committed an offence. In that case, the drawer without prejudice to the other provisions of the said Act shall be punishable with imprisonment for a term which may extend to one year, or with fine which may extend to twice the amount of the cheque, or with both.
The provisions have also been made that to constitute the said offence –
- such cheque should not have been presented to the bank within a period of six months of the date of its drawl or within the period of its validity, whichever is earlier; and
- the payee or the holder in due course of such cheque should have made a demand for the payment of the said amount of money by giving a notice, in writing to the drawer of the cheque within fifteen days of the receipt of the information by him from the bank regarding the return of the cheque unpaid; and
- The drawer of such cheque should have failed to make the payment of the said amount of money to the payee or the holder in due course of the cheque within fifteen days of the receipt of the said notice.
It has also been provided that it shall be presumed, unless the contrary is proved, that the holder of such cheque received the cheque in discharge of a liability. Defences which may or may not be allowed in any prosecution for such offence have also been provided to make the provisions effective. “
PROCEDURE FOR FILING A COMPLAINT UNDER SECTION 138
The Section 143 of the Negotiable Act, post modification by the assembly within the year 2001, specifically provides for all offences below the Chapter square measure to be tried by judicial adjudicator of first-class or Metropolitan adjudicator (hereinafter “MM”) in accordance with the outline Trial provisions of sections 262 to 265 of Croc. it’s been provided for that during a case below the section 138 of the Act, the adjudicator is sceptred to pass a sentence of imprisonment up to one year and fine prodigious Rs. 5000/-. It more provides that if at the commencement or throughout the course of outline trial, millimetre finds that nature of case was such a sentence of imprisonment prodigious one year might got to be passed or for a few different reason millimetre involves conclusion that case mustn’t be tried summarily, the adjudicator must pass AN order once hearing the parties, giving reasons on why he would really like to do the case not during a summarily manner however as a summon trial and he may recall witnesses UN agency might are examined and proceed with the case to listen to it as a summon trial case.7 However, the procedure thus prescribed couldn’t resolve the problems arising from the adversities to adopt the outline procedure. The absence of the parties for the hearing or the absence of the various advocates, were extremely damaging to the target behind prescribing an outline procedure to be followed in cases of dishonour of cheques. After, within the case of Rajesh Agarwal v. State and Others8, the Hon’ble Delhi court prescribed sure tips with relation to the outline trial procedure which might be followed with relation to offences below section 138. The outline trial procedure to be followed for offences below section 138 would so be as under:
Step I: On the day grievance is conferred, if the grievance is in the course of legal document of litigant, the involved millimeter shall scrutinize the grievance & documents and if commission of offence is formed out, take cognizance & direct issuing of summons of defendant, against whom case is formed out.
Step II: If the defendant seems, the millimetre shall raise him to furnish bond to confirm his look throughout trial and raise him to require notice u/s 251 Cr. P.C. and enter his plea of defence and fix the case for defence proof, unless AN application is formed by AN defendant below section 145(2) of Ni Act for recalling a witness for cross examination on plea of defence.
Step III: If there’s AN application u/s 145(2) of Ni Act for recalling a witness of litigant, the court shall decide constant, otherwise, it shall proceed to require defence proof on record and permit cross examination of defence witnesses by litigant.
Step IV: to listen to arguments of either side.
Step V: To pass order/judgment.
JURISDICTIONAL DEVELOPMENT UNDER SECTION 138
The Act is silent on the matter concerning the relevant jurisdiction with relevance filing of criminal grievance just in case the offence of Dishonour of the cheque is committed underneath Section 138. Since the Criminal courts square measure approached, the problem must be examined from the purpose of read of the Criminal Procedure Code, 1973 Section 177 of Croc provides that “Every offence shall ordinarily be inquired into and tried by a Court within whose local jurisdiction it was committed“. Section 178 provides that “(a) When it is uncertain in which of several local areas an offence was committed, or (b) Where an offence is committed partly in one local area and party in another, or (c) Where an offence is a continuing one, and continues to be committed in more local area has one, or (d) Where it consists of several acts done in different local areas, It may be inquired to or tried by a court having jurisdiction over any of such local areas. “
New Negotiable Instruments (Amendment) Bill, 2015
It may be noted that the Apex Court ruling in Dashrath Rathod case solely takes care of ancient technique of cheque clearance. As per this technique the cheque physically travels from the bank branch wherever it’s given to the payer bank branch. The choice therefore exposes difficulties within the modern-day cheque truncation system, wherever the cheque doesn’t visit payer bank. Money establishments and banks pronounced issue in handling things.
It has been opined, in view of the rationale for changing the law with respect to jurisdiction under section 138 of the negotiable instruments act, 1881 that:
“The proposed amendments to the Negotiable Instruments Act, 1881 (“The NI Act”) are focused on clarifying the jurisdiction related issues for filing cases for offence committed under section 138 of the NI Act. The clarification of jurisdictional issues may be desirable from the equity point of view as this would be in the interests of the complainant and would also ensure a fair trial. The clarity on jurisdictional issue for trying the cases of cheque bouncing would increase the credibility of the cheque as a financial instrument. This would help the trade and commerce in general and allow the lending institution, including banks, to continue to extend financing to the economy, without the apprehension of the loan default on account of bouncing of a cheque.”
The Government projected the Negotiable Instruments (Amendment) Bill, 201529 with a read to amending the Negotiable Instruments Act, 1882.Concerns had been raised by varied stakeholders (creditors, business associations, money establishments, etc) expressing apprehensions that the Dasrath Rathod call can supply undue protection to defaulters at the expense of the aggrieved complainant; and would ignore this realities of cheque clearing with the introduction of CTS (Cheque Truncation System). In CTS cheque clearance happens solely through scanned image in electronic type and cheques aren’t physically needed to be given to the supplying branch (drawee bank branch) however are settled between the service branches of the remunerator and recipient banks.
The Ordinance inserted Section 142(2) in the Principal Act. It reads as follows:
“(2) The offence under Section 138 shall be inquired into and tried only by a court within whose local jurisdiction –
(a) If the cheque is delivered for collection through an account, the branch of the bank where the payee or holder in due course, as the case may be, maintains the account, is situated; or (b) If the cheque is presented for payment by the payee or holder in due course otherwise through his account, the branch of the drawee bank where the drawer maintains the account, is situate.
Explanation – For the purpose of clause (a), where the cheque is delivered for collection at any branch of the bank of the payee or holder in due course, then, the cheque shall be deemed to have been delivered to the branch of the bank in which the payee or holder in due course, as the case may be, maintains the account. “
It additionally inserts a brand new Clause 142A, that provides that nonetheless something contained within the Code of Criminal Procedure, 1973 or any judgment, decree, order or directions of any court, all cases arising out of Section 138 of the Act that were unfinished in any court, whether or not filed before it, or transferred thereto, before the commencement of the Negotiable Instruments (Amendment) Act, 2015, shall be transferred to the court having jurisdiction beneath sub-section (2) of section 142 as if that sub-section had been good the least bit material times. wherever one and also the same person has filed cases, in numerous jurisdictions , against one and also the same drawer of cheque , then all such cases have to be compelled to be transferred to the jurisdiction court of the bank branch of the recipient, within which he has given the cheque for payment, is settled . All complaints between an equivalent parties square measure to be tried at one place no matter wherever the recipient deposits the cheques Citing the sooner law to be unfair in the maximum amount because it needed the human to travel the somebody, creditors and stakeholders have welcome the modification.
The Limitation Period for Cheque Bounce Case during COVID-19
On June, 8, 2020, the Finance Ministry announced decriminalization of 39 minor economic offences, as a part of the COVID-19 relief measures. Among others, such offences included dishonour of cheques under Section 138 of the NI Act, 1881. This section earlier levied criminal liability, punishable with imprisonment up to 2 years and/or a fine up to twice the cheque amount.
With a read to containing the unfit of COVID-19 pandemic, the Central and State Governments have declared complete and partial lockdowns throughout the Country. The operation of Courts restricts and solely pressing matters will file through e-filing and takes up by the Judges for hearing by means of video conferencing. though’ the High Courts and Supreme Court have expedited the filing of non-urgent matters on-line, most of the subordinate courts haven’t however at home with the thought of e-filing. Similarly, as most of the first suits/petitions that files in subordinate courts, question on the termination of limitation amount throughout the imprisonment raises a significant downside. In addition, on Cheque Bounce Case, so as to safeguard the interest of litigants, the Supreme Court can indefinitely extend the amount of limitation.
The Law of Limitation
The law concerning limitation prescribes the fundamental measure inside that a specific case needs to be filed. Moreover, if a case is filed when the termination of the limitation amount, it will be disposed of by although the question of limitation isn’t spoken by the opposite party. In addition, all types of dispute have its own limitation amount and for every dispute, the initiate that the limitation amount starts to run differs.
Dishonour of Cheques
Disputes concerning dishonour of cheques deals by the Negotiable Instruments Act. Moreover, cheques are one in all the crucial modes of payment in industrial transactions. It provides surety for future payment of the debt quantity.
When a Dishonour of Cheque is alleged to possess occurred?
Firstly, for a cheque bounce case, a cheque is drawn by someone (payer) on associate account that maintains him in favour of another person (payee). Further, the cheque is drawn to discharge any debt owed or alternative liability towards the receiver. The same cheque, once presents for payment by the receiver returns unpaid by the receiver bank for 2 reasons viz. Moreover, depleted balance in payer’s account (or) further, it exceeds the number to be paid from payer’s account by associate agreement created therewith bank
In order to push the utilization of cheques in business transactions, the law has given a lot of protection against the dishonour of cheque. In addition, the offense of Dishonour of Cheque bounce case is punishable by imprisonment. It’s for a most amount of 2 years or fine of double the number of Cheque.
The procedure in Dishonour of Cheque proceedings begins with sending of a notice to the drawer of the cheque. The drawer has to reply within 15 days and the cause of action arises from the 16th day after sending the notice, if the drawer denies any liability. The Payee has to file a complaint in the court of a Magistrate having proper jurisdiction and then the case is posted for verification either on the same day or on any future date. Once the verification of the complainant is done, the magistrate takes the cognizance and issues the process if he finds merit in the Complaint. Usually, a date of 4 to 5 months is given for serving of the summons on the accused. If Court grants no adjournment in between, then from sending notice till the first appearance of the Accused a minimum of 6 months of the period is easily lost. Thereafter, the trial and examination of the complainant and the procedure of interim compensation takes several months or even years! Though the statute prescribes a summary trial the said requirement remains a dead letter of the It is very discouraging that despite having special provisions for cheque bounce cases and time limit of six months prescribed in the statute, it takes minimum two to five years which is no better than civil suit. The main purpose of provisions incorporated in negotiable instrument act i.e. speedy and time bound trial is itself defeated because of this approach. The courts grant adjournments without any due diligence. The statutory period of trial which is prescribed as six months is generally spent only for the purpose of serving summons. If the Courts will adopt technology, then the dishonour of cheque proceedings can be
Revolutionised what we need to actually change, is our mindset towards a traditional Court system. The technology will make an access to justice easily available to the parties, which will also lead to speedy justice and the constitutional provision under Article 39-A will not remain a mere directive and will make the Equal opportunity of justice a reality! After the e-notices, e-summons the next important change we can adopt is the complete digitalization of the Section 138 trials. Adjournments are often sought on the ground of unavailability of the parties to the trial, but if the evidence will be recorded through Video-Conferencing as a mandate, the parties will be stopped from seeking unnecessary adjournments. A trial through Video-conferencing in Section 138 cases will be possible as most of the times the parties involved are only Complainant and Accused. Additionally, accused can remain ‘present’ in the court through audio-visual means. The only requirement will be a good infrastructure to conduct the e-trials and willingness of the officers of the court, which will make the entire proceeding a matter of a few months! The Hon’ble Apex Court of India has always shown the willingness to grow with the advancement of time. In fact, for the purpose of allowing modern technology to revolutionize trials Apex Court has rejected the doctrines like, “Contemporaneous expositions optima et fortissimo in loge” which can prove to be hindrance in the interpretation of the laws. Unfortunately, even after several amendments the speedy justice in Dishonour of Cheques cases has remained on paper. In November, 2008 Law Commission of India, in 213th report recommended the Fast Track Courts to deal exclusively with the Section 138 cases. In the report the Law Commission mentioned, in the year 2008 there were 38 Lakh cases were pending in India. The recommendation of Law Commission till date remains on paper and has not been implemented. Additionally, the Magistrate Courts are getting burdened with more and more cases under Section 138. As compared to the number of cases being filed, the disposal rate is very low. Moreover, huge pendency of the cases also leaves a large scope for malpractices and corruption to grow.
In light of the above, it is very clear that there exists an immediate need for change. Use of technology and complete digitalization of the Section 138 proceedings can help us in speedy disposal of the cases.
As we tend to trace the history and institution of the Negotiable Instruments Act, 1881 and concentrate on the territorial dialogue below Section 138 that deals with dishonour of cheques we tend to analyse the requirements that forced the Courts and also the Government to adopt landmark changes within the law. the most recent modification and also the gift current law being the 2015 Ordinance, has the result of nullifying the law as ordered down by the Supreme Court in 2014, Dasrat Rathod case. The legal result of the Ordinance is that, thus on institute a criticism below Section 138, an equivalent should be instituted as per: If the cheque is delivered for assortment through associate account, the branch of the bank wherever the recipient or holder, maintains the account, is placed; or If the cheque is given for payment by the recipient or holder otherwise through his account, the branch of the payer bank wherever the drawer maintains the account, is situated. This law comes with a promise to unravel and aid in not solely the speedy disposal of the unfinished cases touching on complaints below 138, however additionally to bring a holiness to the system by seeking to restrict on defaults in payments. It clarifies the legal position on jurisdiction and additionally seeks to stay up with the fashionable industry.