Evolution of cheque

The Negotiable Instruments Act, 1881under Section 6 defines the Cheque as under: A “cheque” is a bill of exchange drawn on a specified Banker and not expressed to be payable otherwise than on demand. It has been replaced by the Negotiable Instruments (Amendment and Miscellaneous Provisions) Act 2002, a “cheque is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand and it comprises the electronic image of a condensed cheque and a cheque in the electronic form”. Under the Black’s Law Dictionary cheque is defined a draft drawn upon a bank and payable on demand, which signed by drawer, containing a promise to pay a sum certain in money, to the order of the payee.  

Advancement and progress of society and a concomitant increase of commerce and various activities of trade, lead to increased complexity in transaction of money between human beings and the ancient law providers were also forced by the circumstances to evolve new rules for regulating such monetary transactions. Since business activities have increased, the attempt to commit crimes and indulge in activities for making easy money has also accelerated. Thus, besides civil law, an important development both, in internal and external trade is the growth of criminality and we find that banking business is every day being confronted with criminal actions which has led to an increase in the number of criminal cases pertaining to banking transactions.

cheque is an acknowledged bill of exchange that is accepted for the payment of money and it is negotiable. However, by the fall of moral standards, even these Negotiable Instruments like cheques issued, started losing their credibility by not being honored on presentment. It was noticed that a suit in the civil court, for collection of the takings of negotiable instruments like a cheque tarried, which defeats the very purpose of recognizing a negotiable instrument as a speedy vehicle of commerce. Consequently, Section 4 of the Banking, Public Financial Institutions and Negotiable Instruments Laws (Amendment) Act, 1988, inserted Chapter XVII in the NI Act.  

It stated 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, or if it exceeds the arrangements made by the one who draws the cheque with the bankers for that account, the drawer of the cheque will be deemed to have committed an offence. In such a case, the drawer would be punishable with imprisonment of up to one year, or with fine of up to twice the amount of the cheque, or with both.

To constitute the said offence, the following actions should be met-

  1. such cheque should not have been presented to the bank within a period of six months of the date of its withdrawal or within the period of its validity, whichever is earlier; and
  2. the holder should have made a demand for the payment of the said amount of money, in due course of such cheque,by giving a notice, to the drawer of the cheque, within fifteen days of receiving that information by him from the bank regarding the return of the cheque unpaid; and
  3. the drawer of such cheque should have unsuccessful to do the payment of the said amount of money to the payee in due course of the cheque within fifteen days of the receiving the said notice.

The Bill provided few considerable safeguards to ensure that sincere customers of the bank were not hassled. These safeguards included-

  1. that no court should take cognizance of any such offence except on receiving a complaint, in writing made to the holder in due course of the cheque;
  2. that the complaint was made within one month of the date on which the cause of action arose; and
  3. that the offence should be tried by no court inferior to that of a Metropolitan Magistrate or a Judicial Magistrate of the first class.  

In the case of Dalmia Cement (Bharat) Ltd. V Galaxy Traders and Agencies Ltd., the Apex Court referred to the object of Section 138 of the Act. The court perceived that Act Section 138 was incorporated with a specific object, to make a special provision by incorporating a strict liability for the cheque, a negotiable instrument. The law relating to the negotiable instruments is to enable the activities in trade and commerce, provisions regarding the same give sanctity to the instruments of credit, which could be deemed to be convertible into money and easily traversable from one person to another.

Section 92 talks about “Dishonor by non-payment. It says that, a promissory note, bill of exchange or cheque is said to be dishonored by non-payment when the maker of the note, acceptor of the bill or drawee of the cheque makes default in payment upon being duly required to pay the same.” Therefore, if on performance the banker does not pay the amount, a dishonor takes place and the holder acquires the right of remedy against the drawer and the other parties on the cheque.

 

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