Civil Procedure Code (CPC)

Need Details On Negociable Instrument Act


Hi All,

This is charan from chennai and iam currently pursuing LLB (First Year) and i would like to know about Negociable Instrument Act and what are provisions covered under this act and how it applies...Kindly provide details at the earliest...Thanks in advance




Dear Kedar, Here is am article by Surabhi Narula, an Article:Negotiable Instruments Act, 1881 On Dishonour Of Security Cheques Cases of cheque bounce are not uncommon these days. In most of the transactions be it re-payment of loan or payment of fees for business purpose, payments are made by cheque. These cheques bearing large amounts sometimes remain unpaid and are returned by the bank on which they are drawn. For such cases punishment is provided by Section 138 of Negotiable Instruments Act, 1881 (hereinafter the Act). Offence of dishonour of cheque as mentioned u/s. 138 of the Act is considered as a criminal offence. Section 138 says: Dishonour of cheque for insufficiency, etc., of funds in the account 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 provision of this Act, be punished with imprisonment for a term which may extend to one 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 in due 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, within fifteen days of the receipt of information by him from the bank regarding the return of the cheque 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. This provision explains the direct recourse in case of dishonoured cheque without any debate. However, the problem arises when the cheque dishonoured is issued as a security cheque. Law is not clear whether such cheque can be submitted to the consequences of Section 138 of the Act or not. The position, whether the security cheque is attracted by the consequences of Section 138 of the Act or not, is rebuttable under the purview of Section 139 of the Act. Section 139 of the Act says: Presumption in favour of holder: It shall be presumed, unless the contrary is proved, that the holder of a cheque received the cheque of the nature referred to in section 138 for the discharge, in whole or in part, of any debt or other liability. In view of the decision of Supreme Court in the case of Adalat Prasad v Roop Lal Jindal and others once the cheque has been issued and the same has been presented and upon its dishonour the procedure prescribed for issuance of notice had been followed, the presumption under section 139 arises immediately. The presumption can be rebutted by adducing evidence and the burden of proof is on the person who wants to rebut the presumption. Therefore, if the accused proves with the help of evidence, be it direct or circumstantial, that the cheque given as security was not for discharge of any liability then the onus to prove that the cheque was in discharge of some liability shifts on plaintiff. In case the plaintiff fails to prove his case then the decision will be in favour of accused. In such cases accused is not required to proof the case beyond a reasonable doubt. Contrary to the above view, Justice Rao in one of the matters on the same issue observed that " A cheque whether issued for repayment of a loan or as a security makes little difference under Section 138 of the Act. In the event of a dishonour, legal consequences are same without distinction". However, the High Court of Delhi in the case of M/s Datt Enterprises ltd. v V.K.Dua and Another after evaluating the evidence presented by the parties held that the security cheque does not attract the provisions of section 138 of the Act. Court observed that plaintiff made false allegations towards the defendant. The cheques were given as a security cheque as per past practice and pending reconciliation of accounts and not towards discharge of any liability. Same observation was reiterated by the Court in the case of M.S. Narayana v State of Kerala where the Court observed that: ?The evidence adduced by the parties before the trial court could lead to once conclusion that the Appellant had been able to discharge his initial burden. The burden thereafter shifted to the Second Respondent to prove his case. He failed to do so. Further the Sinha.J observed that The Appellant clearly said that nothing is due and the cheque was issued by way of security. The said defence has been accepted as probable. If the defence is acceptable as probable the cheque therefore cannot be held to have been issued in discharge of the debt so far, for example, if a cheque is issued for security or for any other purpose the same would not come within the purview of the Section 138 of the Act Conclusively, we can say that from the above-mentioned authorities it is evident that with respect to the dishonour of security cheques position is still not clear. It is subject to presumption and proof thereof that may be given by either party in support of their case. The author can be reached at: Added Date: 4 Oct 2007 Lenght: 1059 words Views: 2823

practicing advocate

When a person issues a cheque to another person to clear the legally payable debt and such cheque bounces and return the person who had sent for collection then it comes under Sec 138 of N I Act.

to attaract sec 138 of NI Act legally payable debt is mandatory. 

After the receipt of bounces cheque notice will have to be issued within 1 month from the date of receipt of banker's memo, to clear the cheque amount within 15 days from the date of receipt of notice .

After issuing a notice it is necessry to give 15 days for the payment of cheque amount.

Even after receipt of notice  if he fails to pay the cheque amount then within one month complaint will have to be filed u/s 200 of cr.p.c. r/w sec 138 of NI Act.

To take" Accused failed to pay the legally payable debt" is mandatroy avearment in the complaint.

It is just a gist regarding NI Act



Thanks for the detail description on the N I act and i am having one more query as well. Now i can understand what is mean by N I,  but there is an other act which i will cover the holidays of the company i.e. Ex: Due to elections the company will declare a leave for his employees stating under one act if I am not wrong that also negotiable act i believe
Kindly provide the details on this also and many thanks for the prompt reply and the reason for asking on this query as I am an HR by profession and i would like to strong in legal as well..
Thanks in advance..
practicing advocate

The holiday declared on the eve of the election is under negotiable instrument Act. It means holiday is in evitable, but it is not under this Negotiable Instrumenbt act.  The Holidays declared under the negotial instrument act is entirely different.  In case of emergency holidays will be declared in this act.




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