DISHONOUR OF CHEQUE U/S 138 OF N.I ACT 1881
WHAT IS CHEQUE?
As per simple definition is concerned the word cheque means an order to a bank to pay a stated sum from the drawer's account, and according to Black’s law Dictionary cheque is defined as “A signed document that instructs the bank or financial institution to pay the sum of money stated to the person or organization whose name is on the cheque”
WHAT IF YOU’RE CHEQUE GET DISHONORED?
When a cheque is dishonored, the drawee bank immediately issues a ‘Cheque Return Memo’ to the banker of the payee mentioning the reason for non-payment. The reasons for non- payments includes,
- INSUFFICIENT FUNDS
- PAYMENT STOPPED BY DRAWER
- REFER TO DRAWER OR ACCOUNT CLOSE also considered as insufficient funds “Ashok Badwe vs. Surendra Nighojkar A.I.R. 2001, S.C. 1315”
WHAT LEGAL PROVISIONS YOU HAVE?
That after the dishonorment the payee’s banker then gives the dishonored cheque and the memo to the payee. Thereafter the holder of the cheque can initiate legal proceeding against the person who issued cheque by giving them a Notice of Demand U/S 138 of Negotiable Instrument Act 188.
NOW, WHAT IS SECTION 138 OF NEGOTIABLE INSTRUMENT ACT 1881?
Section 138 of N.I Act is applicable for the cases of dishonor of cheque. According to Section 138 of N.I Act the dishonor of cheque is a criminal offence and is punishable by imprisonment up to two years or with a monetary penalty or with both.
According to section 138(B) of N.I Act the payee has to send the notice to the drawer within 30 days from the date of receiving “Cheque Return Memo” from the bank. The notice should mention that the cheque amount has to be paid to the payee within 15 days from the date of receipt of the notice by the drawer. If the cheque issuer fails to make a fresh payment within 30 days of receiving the notice, the payee has the right to file a criminal complaint under Section 138 of the Negotiable Instruments Act.
WHAT INGREDIENTS SHOULD BE THERE IN DEMAND NOTICE
As we have already understood that Demand Notice is the mandatory provision under section 138(B). The demand notice should contain the following things:-
- That there must be a contract or agreement between the holder and drawer.
- The payee had issued the cheque in discharge of his legally recoverable debt
- That there must be details of the cheque and return memo
- There must be demand for the payment.
- There must be 15 days time period in which the drawer should make a payment.
(Remember as per section 138(B) this Demand Notice should be sent within 30 days from the receipt of the return memo.)
The drawer shall be liable for conviction if the demand is not met within 15 days of the receipt of the notice.
WHAT IF DRAWER IGNORES THE DEMAND NOTICE?
When notice by registered post returned unclaimed there is a presumption that service is duly affected. (Rahul V. Arihant Fertilizers 2008 (4) Mh.L.J. 365 (SC), K.Bhaskaran V. Shankaran Vidhyabalan 1999 AIR SCW, 3809).
WHAT ARE THE INGREDIENTS OF 138 COMPLAINANT?
- The cheque must have been drawn for discharge of existing debt or liability,
- Cheque must be presented within 6 months or within validity period whichever is earlier
- Cheque must be returned unpaid due to insufficient funds or it exceeds the amount arranged.
- The fact of dishonour is informed to the drawer by notice within 30 days.
- The drawer of cheque must fail to make payment within 15 days of receipt of the notice
These all requirements are given in “Krishna janardhan bhat V. Dattatraya G. Hedge, 2008(4) SCC 54:2008(1) SCR605”
WHAT DOCUMENTS REQUIRE AT THE TIME OF PRESENTATION OF COMPLIANNAT
- Original Cheque
- Original Return Memo
- Purchase order/Sale receipt/Ledger A/C
- Original speed post/ courier receipt
- Delivery status report.
These all documents should be annexed with the complainant.
COGNIZANCE OF OFFENCE U/S 142 OF NEGOTIABLE INSTRUMENTS ACT, 1881
The 138 complainant is made to the Chief Metropolitan Magistrate in written form within one month of the date on which the cause of action arises.
FROM WHEN CAUSE OF ACTION STARTS?
Cause of action arises when notice is served on the drawer and drawer fails to make a payment of the amount of cheque within 15 days. However, by Amendment Act of 2002 court is empowered to take cognizance of the offence even if a complaint is filed beyond one month by condoning the delay if sufficient cause is shown
As per supreme court judgement the cause of action for filing complainant would arise after the completion of 15 days from the date the drawer receives the notice and fails pay the amount within that period.
Once a cause of action has arisen, the limitation will begin to run and it could not be stopped by presenting the cheque again so as to have a fresh cause of action and fresh limitation
AFTER COMPLAINANT PROCEDURE
The summary trial procedure to be followed for offences under section 138 would thus be as under:
Step I: On the day complaint is presented, if the complaint is accompanied by affidavit of complainant, it also be called as Evidence by way 0f Affidavit thereafter the concerned M.M shall scrutinize 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.
Step II: If the accused appears, the MM shall ask him to furnish bail bond to ensure his appearance during trial and ask him to take notice u/s 251 Cr. P.C. and enter his plea of defence and fix the case for defense evidence, unless an application is made by an accused under section 145(2) of NI Act for recalling a witness for cross-examination on plea of defence.
Now the question arises what is 145(2) application?
So, it is generally a tool which can be used by the accused person by calling the witnesses of the complainant again and cross-examining them.
145(2)The Court may, if it thinks fit, and shall, on the application of the prosecution or the accused, summon and examine any person giving evidence on affidavit as to the facts contained therein.
Step III: If there is an application u/s 145(2) of NI Act for recalling a witness of the complainant, the court shall decide the same, otherwise, it shall proceed to take defence evidence on record and allow cross-examination of defense witnesses by a complainant.
Step IV: To hear arguments of both sides.
Step V: To pass order/judgment.
(DRAFT OF DEMAND NOTICE)
SUBJECT- NOTICE OF DEMAND U/S 138 OF NEGOTIABLE INSTRUMENT ACT 1881
Under the instructions from my client ............S/o.........................Residing at .................I give the folllowing notice.
- That, my client is having business in ......................running a shop at............
- That you came to my client on.............and I purchased the following goods as specified infra, (specify the details of goods purchased).
- That you promised to repay the amount of Rs.....the price of the goods purchased by you from my client on.............and amount is Rs.........
- That you issued a cheque bearing No..............dated...........to be drawn on.............Bank, for Rs.............which represents the amount due to be paid to my client because of the purchase of aforesaid goods.
- My client states that he had presented the cheque on..................for encashent but the same was dishonoured with an endorsement that there are insufficient funds on....................
- That my client however is reserving his right to file a criminal complaint also by issuing appropriate legal notice in this regard.
- My client also states that you are liable to pay the aforesaid amount with interest thereon up-to-date and though my client requested you on several occasions personally and through mediators, you are not inclined to repay the same.
- I therefore call upon on behalf of my client to repay the amount due specified in the notice within a period of fifteen days from the date of receipt of the notice failing which my client will be constrained to take necessary legal action for recovery of amount due from you. My client hopes that you may not invite such litigation which may be an unwanted litigation in the circumstances of the case.
- This is without prejudice to all other legal rights and remedies available to our client for the above-stated purpose.
NOTE: Copy of this notice is retained in the office of the undersigned for further legal action in case of non-compliance of demand of present legal notice.