25% OFF on all LCI Courses. Offer valid till 5th Oct. Use Code: DUS25
LCI Learning

Share on Facebook

Share on Twitter

Share on LinkedIn

Share on Email

Share More

Jyothiswaroop (General Manager)     19 March 2014

Case against cheque bounce for a cheque given as surety

Respected Sirs/Madams,

My father had given a joint account cheque as a surety/guarantee for a home loan that his friend had taken. This cheque belonged to a joint account that he held with his wife (my mother). Now the loan was not paid in time, so the bank sold the attached property to recover the loan principal etc.

In fact we are aware that there was an excess amount after the sale of the property and this excess amount was credited to the borrower's account. But the bank has also gone ahead in encashing the cheque, which my father gave as a surety. This cheque bounced and hence a case was filed against my father as the primary accused person, and my mother as co-accused even though she had not signed as a guarantor or on the cheque. 

I wanted to understand whether 138 NI act holds good here since the cheque was not given to discharge a liability but just as a surety. Also, what could be the potential consequences to the prime accused in such cases?

Request your kind advice in this regard.

Thank you in advance for your help!



Learning

 10 Replies

Gagandeep Goel (Advocate)     20 March 2014

Hello There

After carefully going through your case, the basic principles of the Contract act has to be set in motion and hence I will site the relevant provisions in this regards.

In a contract of Guarantee the liability of the surety is CO-EXTENSIVE with that of the Principal debtor and it means that both of them swim and sink together.

Any act of the creditor which discharges Principal Debtor SHALL discharge the surety too. 

hence a case against your father is not made out.

Relevant Citation is State of Haryana V/s Bhajan Lal, which states that even if the complaint is accepted in its totality even then if a case is not made out then the court has to dismiss the case and discharge the accused as per Sec. 227 Crpc.

For obvious reasons the magistrate shall not be able to help you, and for challenging the same you will need to approach the high court U/s 482 CrPC and then get the complaint quashed and the same shall be done by High Court without any unnecesary delay.

Talking about the liability of the mother, she has no role to play in any manner.

Kindly take appropriate action as per my advise and I shall be grateful if you appreciate my legal opinion.

 

Regards

Gagandeep Goel

987 220 6969.

goel1119@yahoo.com

LAXMINARAYAN - Sr Advocate. ( solve problems in criminal cases. lawproblems@gmail.com)     20 March 2014

It is easy to suggest HC UNDER 482  but it is not cheap and more than ninety percent such action at HC level fails.

 

You have to contest at trial court with proper defense which are more than many.

1 Like

R Trivedi (advocate.dma@gmail.com)     20 March 2014

You have not stated the stage at which the case is. Only after knowing the stage a better assessment can be made.

 

If whatever you state is truthful then you must file (later on) a criminal case against the Chairman of the Bank under S.209 / 211IPC, for claiming the money not due. Few irresponsible people shall be terminated.

1 Like

Nadeem Qureshi (Advocate/ nadeemqureshi1@gmail.com)     21 March 2014

the cheque is securty or not is matter of trial. but the case against your mother is not maintainable because the person who signed the check is only liable to be prosecuted. other then this when the bank sold the peoperty and get excess amount then loan then the complaint is against the law and bank can be prosecuted before court for harassment and file false cases. feel free to call
1 Like

T. Kalaiselvan, Advocate (Advocate)     21 March 2014

What bank has done in your case is an patent error.  The bank has already recovered the due amount by selling the property and has remitted the excess sale consideration amount to the borrower's credit, therefore there is actually no dues to the bank with regard to the loan or its interest, thus there is no legal liability of debt to the bank either by the borrower or the surety.  Thus, it is a mischief of the bank  to unnecessarily drag you to the court in cheque bounce case.  You can challenge it appropriately. The bankers have no case at all.

R Trivedi (advocate.dma@gmail.com)     22 March 2014

I time and again have been stressing that at present S.138/S.139 is incorrectly interpreted by Hon Courts. It is presumed by almost one and all that complainant is not required to prove the facts behind liability, which is a fundamental error and against the law.

 

Only presumption available to holder is that the cheque is issued for liability as stated by the complainant, that means accused cannot say that the cheque issued as a gift or for some other purpose or for some other liability, accused has to disprove the story. But the complainant is first required to prove the existence of such liability by supporting facts for rebuttal. Some joker having a cheque in hand cannot come forward and say that the cheque is issued for so and so liability, now disprove it.

1 Like

MANOJ HARIT (LAWYER)     23 March 2014

Very well put by Mr. R. Trivedi. I agree with him that the Complainant ought to prove the existence of legal debt by leading evidence. And in your case there is no liability as the entire amount has been recovered from sale of property.

Now don't spare the Bank. Initiate civil as well as criminal proceedings against the Bank.

Manoj O. Harit 

MANOJ HARIT (LAWYER)     23 March 2014

Very well put by Mr. R. Trivedi. I agree with him that the Complainant ought to prove the existence of legal debt by leading evidence. And in your case there is no liability as the entire amount has been recovered from sale of property.

Now don't spare the Bank. Initiate civil as well as criminal proceedings against the Bank.

Manoj O. Harit 

MANOJ HARIT (LAWYER)     23 March 2014

Very well put by Mr. R. Trivedi. I agree with him that the Complainant ought to prove the existence of legal debt by leading evidence. And in your case there is no liability as the entire amount has been recovered from sale of property.

Now don't spare the Bank. Initiate civil as well as criminal proceedings against the Bank.

Manoj O. Harit 

Nitish Banka (lawyer)     03 April 2018

Posted by: Nitish Banka  Categories: Criminal Law 
 

 

What is a Cheque Bounce?

A Cheque Bounce case is a criminal case envisaged under section 138 of Negotiable Instruments Act. A cheque is said to have bounced because of below mentioned reasons.

  1. Stop payment
  2. Insufficient balance
  3. account closed
  4. signature mismatch
  5. exceeds arrangement

Conditions necessary for cheque bounce

  1. The cheque is bounced due to insufficiency of funds or all the above reasons.
  2. A Legal notice is given within 30 days.
  3. A payment of due amount is not made within 15 days time.
  4. the payment was to be made for discharge of legally enforceable debt.

Strategies to fight cheque bounce

Dispute Legally enforceable debt.

Since onus is on the accused to prove that there is no legally enforceable debt here are the examples to show that there was no legally enforceable debt

Cheque bounced was given as Security

If the cheques were taken only as security for prompt repayment and those cheque were not indischarge of any debt or liability. The date on which cheques were taken there was no debt or liability Accused cannot be prosecuted under NI 138.

In the case of Joseph Vilangadan (Supra) the facts were that the Directors had given certain cheques as refundable security deposits to ensure due performance of their work. In the given facts and circumstances it was held that there did not exist any debt or liability and the cheques were given solely for the purpose of security and hence no action under section 138 of the Act was maintainable.

If there was no debt or liability at that point of time while issuing the cheque

In Shreyas Agro Services Pvt. Ltd. vs Chandrakumar S.B. on 16 February, 2006

The very scheme of procedure adopted shows that the cheques are not issued in respect of any current existing ascertained liability. The words “for discharge of any debt or other liability” inSection 138 of N.I. Act should be interpreted to mean current existing or past ascertained liabilities. The cheque issued in respect of future liabilities not in existence as on the date of cheque would not attract prosecution Under Section 138 of N.I. Act.

So even if security cheque is bounced the prosecution can be initiated and only defence is that there was no legally enforceable debt.

Related image

 

Friendly loan with respect of unaccounted money

As held in Sanjay Mishra vs Ms.Kanishka Kapoor The learned Judge held that the applicant has failed to establish that the cheque was issued by the 1st respondent in discharge of legal liability of the loan amount. The learned Judge observed that the 1st respondent has denied her signatures on the bill of exchange as well as the cheque subject matter of the complaint. The learned Judge has taken into account various circumstances borne out by the evidence on record and has passed order of acquittal. The learned Judge also considered the admission of the applicant that the amount advanced was an unaccounted amount which was not disclosed to the Income Tax Authority.

Cheque was lost and reporting of loss as well as stop payment prior to issuance of the cheque.

What is the case of the petitioner? According to him he had lost the cheque leaf. When was the cheque leaf lost? Under what circumstance was the cheque leaf lost? What is the conduct of the petitioner when he  realised that such cheque leaf was lost? Is there any conduct congruent to lose of such cheque leaf as alleged by the petitioner? Is there any conduct consistent with the theory of loss of cheque leaf? It is crucial and vital that there is not a single piece of acceptable conduct in which the petitioner is shown to have indulged in if as a matter of fact the cheque leaf were lost from his possession. If it were lost, one would have expected the petitioner, himself an employee of a Co-operative Society, to atleast issue a stop payment memo. That was not done. Of course, a convenient Bank Manager did attempt to oblige his customer, the petitioner, by stating in the course of cross examination that oral information was given. It is crucial that even the Manager does not say when that oral information was given and in respect of which cheque. If any such oral information were given, it is extremely unlikely that the cheque would have been dishonoured except on the ground of stop payment. The memo of dishonour does not significantly reveal such a ground for dishonour at all.

Accused Disputing Signature on Cheque

If the accused disputes the signature on the cheque. It is the banker who is the most reliable evidence to establish that the cheque is bounced due to signature mismatch. The bank manager has to summoned with all the records related to signature of the accused and testify in court that the cheque signatures mismatch.

There are also other defenses available to disprove cheque bounce cases however if the cheque is really issued for discharge of legally enforceable debt then it is better to compromise as the cheque bounce case is compoundable


Leave a reply

Your are not logged in . Please login to post replies

Click here to Login / Register  



Post a Suggestion for LCI Team
Post a Legal Query