Negotiable Instruments: Exhaustive Coverage by Adv Roma Bhagat. Register Now!
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In the commercial world, considering them as one of the convenient modes for transferring money, Negotiable Instruments are being used for a long period of time. A Cheque is also a negotiable instrument and in our legal system, dishonor of check is considered to be an offense.

In the case of, Modi Cements Ltd. V. Kuchil Kumar Nandi, 1998 3 SCC 249, the honorable Supreme Court observed that the objective of Chapter XVII of the NI Act, 1881, containing section 138 to section 142 is to promote the efficacy of banking operations and to ensure credibility in transaction business through cheques.

Section 138 of the Negotiable Instrument Act, 1881

This section mentions that the dishonor of a cheque is an offense under this section and it is punishable by imprisonment up to two years or with a monetary penalty or with both.

In the case of, ICDS Ltd. V. Beena Shabeer, 2002 6SCC 426, the honorable court held that terms ‘any cheque' and 'other liability is clarified. It was also held that according to the provisions which are laid down in Section 138 of the Negotiable Instruments Act, 1881, if any cheque is given towards any liability which has been incurred even by a different individual but the person who draws the cheque is liable for being prosecuted in case a cheque is dishonored.

In the case of, MSR Leathers V. S. Palaniappan, 2013 1 SCC 177, the court held that dishonor of a negotiable instrument whether based on a second or any successive presentation of a cheque for the encashment it will be regarded as dishonor within the meaning of Section 138 of the Negotiable Instruments Act, 1881.

The other inter-linked sections to section 138 are Section 139, 140, 141, and 142.

Section 139 of the NI Act, 1881

It states about the presumption in favor of the holder and it also talks about the liability of an individual who has issued a cheque of a certain amount of money and it has been dishonored.

In these matters, such a person is presumed to be guilty until and unless he proves himself innocent in the eyes of law. It is a presumption under this section that a cheque that is presented for discharging the liability may either be for partial or whole discharge of the liability of debt.

A person who is accused of such an offense cannot escape the liability by simply stating that it was given as security. If the presumption of liability is disproved then the burden of proof shifts from the respondent to the complainant which means that the complainant has to then prove that the cheque was issued for discharging of the liability of debt.

In the case of, Krishi Vikas Kendra V. Mukund and Anr., 2005, it was held by the court that, the accused or the respondent has the burden of proof and he has to prove his innocence concerning the dishonored cheque as per the provisions which are contained in Section 140 of the Negotiable Instruments Act, 1881.

Section 140 of the NI Act, 1881

This section states that this is not a defense in the prosecution of an offense under section 138 that the drawer of the cheque has no reason to believe that when the drawer issued the cheque, that the cheque may be dishonored on presentment for the reason stated in that section.

Section 141 of NI Act, 1881

This section states the situation wherein if the offenses under Section 138 are committed by a company. It mentions and deals with the dishonoring of cheques that are drawn by the company. This section extends the liability to every individual who when the offense was committed was responsible for the conduct of the company or was in charge of such company.

It is also given under this section that if the individual can prove the fact that the offense was committed without his knowledge on his part and all the reasonable and necessary steps were taken by him that a prudent man would have taken to prevent the happening of the offense than he is not held liable for the same.

Section 142 of the NI Act, 1881

This section states the cognizance of offenses concerning Section 138 of the Act.

It states that without regarding anything contained in the Code of Criminal Procedure, 1973-

  1. It states that no Court shall take any notice of any offense which is regarded punishable under the provisions mentioned in Section 138 of the Negotiable Instruments Act, 1881 unless a complaint is given by the holder in the written form.
  2. It states that any such complaint which is made within 30 days of the date on which the cause of such action arises under the provisions contained in Section 138 of the Negotiable Instruments Act, 1881.
  3. It further states that no Court, who is inferior to the Metropolitan Magistrate or a Judicial Magistrate of the first class, shall try any offense which is punishable under the provisions laid down in Section 138 of the Negotiable Instruments Act, 1881.

Amendments under the Negotiable Instrument Act, 1881

1) Banking, Public Financial Institutions and Negotiable Instruments Laws (Amendment) Act, 1988

  • Before the year 1988, there was no actual, effective legal provision to restrict people from issuing cheques without having sufficient funds in their account or any stringent provision to punish them but in terms of dishonor of cheques, obviously, a civil liability accrued. To protect drawee of the cheque need was felt that dishonor of cheque is made a punishable offense.
  • For that purpose, Sec.138 to 142 was inserted. It was established by making the drawer liable for penalties, in case of bouncing of the cheque due to insufficiency of funds with adequate safeguards to prevent harassment of the honest drawer

2) Amendment of the Negotiable Instrument Act, 2002

  • Keeping regard to the penal provisions on dishonor of the cheques and the bottlenecks that have surfaced in strictly implementing these provisions. The Parliament enacted the Negotiable Instruments (Amendment and Miscellaneous Provisions) Act, 2005 (55 of 2002), which is intended to plug the loopholes.
  • This amendment act inserted five new sections, that is from Section 143 to Section 147, touching various limbs of the Parent Act. The Amendment Act was brought into force on 6 February 2002.

3) The Negotiable Instrument (Amendment) Act, 2018

  • The Central government incorporated certain new provisions in the act. These new provisions came into effect on 01 September 2018.
  • These newly enacted provisions allow the Court, to try an offense related to cheque bouncing, to direct the drawer to pay interim compensation not exceeding twenty percent of the cheque amount to the complainant within 60 days of the trial court's order to pay such compensation. This interim compensation may be paid either in a summary trial or in summons, in case where the drawer pleads 'not guilty to the accusation made in the complaint, or upon framing of charge in any other case.

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