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Neeraj (Company secretary)     07 November 2011

Defamation suit

a banker has returned the cheques signed by a Director of a company with the remark refer to drawer, despite sufficient fund in the account.

When the bank was contacted by the Director the Bank said they have frozen the account on the instruction of the shareholder, The bank does not have any order from the Cout/CLB or any other authority. Over and above the the Bank even not bothored to inform the company or any of its directors before or immediatly after freezing the account.

The Bank has also written to the drawee that the Directors have attempted a fraud against the company. It is important to note that company is just maintaining a Current Account with the Bank and has not taken any credit facility from the Bank. 

The Drawee has also initiated a criminal case under section 138 of NI Act. againt the Company and its Directors.

Whether the director can file a defamation case against the Bank.




Neeraj Pandey




 8 Replies

sridhar pasumarthy (ADVOCATE)     07 November 2011

Dear Neeraj,

Yes, fit case for defamation.

Surendra Gupta (Banker)     07 November 2011

The bank does not appear to be justified in freezing your account. You can issue a notice for damages and later consider filing a suit.


As regards the proceedings under sec 138 of the negotiable instruments act, your case is strong as there was sufficient balance in your account for clearance of the cheque. The case can be filed only where the cheque is turned unpaid with the remarks "INSUFFICIENT BALANCE"

The relavent rules are as under:-


The Negotiable Instruments Act, 1881


138. Dishonour of cheque for insufficiency, etc., of funds in the accounts





Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall without prejudice to any other provisions of this Act, be punished with imprisonment for 2["a term which may extend to two year"], or with fine which may extend to twice the amount of the cheque, or with both:


Provided that nothing contained in this section shall apply unless-


(a) The cheque has been presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier.


(b) The payee or the holder induce course of the cheque, as the case may be, makes a demand for the payment of the said amount of money by giving a notice, in writing, to the drawer, of the cheque, 3["within thirty days"] of the receipt of information by him from the bank regarding the return of the cheques as unpaid, and


(c) The drawer of such cheque fails to make the payment of the said amount of money to the payee or, as the case may be, to the holder in due course of the cheque, within fifteen days of the receipt of the said notice.


Explanation: For the purpose of this section, "debt or other liability" means a legally enforceable debt or other liability].




The Negotiable Instruments Act, 1881 was amended by the Banking, Public Financial Institutions and Negotiable Instruments Laws (Amendment) Act, 1988 wherein a new Chapter XVII was incorporated for penalties in case of dishonour of cheques due fo insufficiency of funds in the account of the drawer of the cheque. These provisions were incorporated with a view to encourage the culture of use of cheques and enhancing the credibility of the instrument. The existing provisions in the Negotiable Instruments Act, 1881, namely, sections 138 to 142 in Chapter XVII have been found deficient in dealing with dishonour of cheques, Not only the punishment provided in the Act has proved to be inadequate, the procedure prescribed for the Courts to deal with such matters has been found to be cumbersome. The Courts are unable to dispose of such cases expeditiously in a time bound manner in view of the procedure contained in the Act- (Para 1)


Keeping in view the recommendations of the Standing Committee on Finance and other representations, it has been decided to bring out, inter alia, the following amendments in the Negotiable Instruments, Act, 1881, namely:-


(i) to increase the punishment as prescribed under the Act from one year to two years;


(ii) to increase the period for issue of notice by the payee to the drawer from 15 days to 30 days; (Para 4)

Rajeev Kumar (Lawyer/Advocate)     07 November 2011

I agree with sridhar and surendra both.

Nadeem Qureshi (Advocate/ nadeemqureshi1@gmail.com)     08 November 2011

account frozen.......................then how NI Act is applicable?

Nadeem Qureshi (Advocate/ nadeemqureshi1@gmail.com)     08 November 2011

i dont think so

I.S.Roy,Advocate (Advocate)     29 November 2011

Dear Sir

It is a question of damages to claim but not regarding defamation because, the event and definition of defamation is very different


with regards


Neeraj (Company secretary)     30 November 2011

The bank memo remark is " Refer to Drawer"  which normally means insufficient funds , and on this basis 138 matter is filed.

The Bank has frozen the account jsut after transfering the FD amount to the Current Account without informing the Company ,that too without any order from any statutory authority just to enjoy the free funds of the company which is substantial.

DEFENSE ADVOCATE.-firmaction@g (POWER OF DEFENSE IS IMMENSE )     30 November 2011

NI 138 once process is issued you have to face trial . And unless you and your advocate are viigillant conviction is imposed.

we still maintain that it is easy to come out provided you contest properly.

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