Cheque Bounce Cases: Legal Angle

The author of this blog is Anubhav Shukla University of Petroleum and Energy Studies (UPES)

 A 1st-year student pursuing BA LL.B.(Hons.)

A cheque is a bill of exchange drawn upon a specified banker and is payable only on demand. They are one of the important forms of the transaction for payment of salary, dues, and fees, and many more things. In simple terms, dishonor of cheque is a condition in which the bank refuses to pay the amount to the payee.

Some of the most common reasons for the dishonor of cheque is-

• Insufficient fund
• Closed account and
• Stop payment.

Parties to the cheque-

1. Drawer- Person who writes or issued the cheque i.e. the author of the cheque is known as a drawer.
2. Payee- To whom the cheque is made in favor is known as payee or the person who will get the written amount on the cheque.
3. Drawee- It refers to the bank where the drawer has the account from which the cheque amount shall be paid.
4. Payee - Refers to the bank where the payee has the bank account in which the cheque amount to be deposited or where the cheque is to be deposited.

In the case of K.Rajalingam V. R.Suganthalakshmi [1], the full bench of Madras High Court held that that the appeals against acquittal of the accused in a cheque bounce case can be filed only before the High Court under Section 378(4) of Cr.P.C. A bench comprising of J.MM Sundresh, J.V Bharathidasan, and J. N. Anand rendered another full bench decision given in the case of n S.Ganapathy V. N.Senthilvel and stating it ‘per incuriam’ as it has been decided without any reference to the binding authority in Damodar S. Prabhu V. Sayed Babalal.

Legal provisions

 The Negotiable Instruments Act, 1881 deals with the negotiable instrument, promissory notes, cheques, bills of exchange, etc. Section 138- 142 is added to keep the people's trust alive on the banking system and giving credibility to negotiable instruments employed in business transactions. Section 138 of this Act states that dishonor of cheque is a criminal offense and is punishable by imprisonment for up to two years or with the monetary penalty or with both. Firstly after the dishonor of the cheque, the drawer should be given notice in written form within the 15 days of issuing the ‘cheque return memo’ from the bank. Facts of the case, amount to be paid, nature of transaction and date of depositing instrument and date of dishonoring of cheque should also be mentioned in the notice. If a drawer fails to make a fresh payment to the payee within 3o days of receiving notice, the payee has the right to file a case against the drawer under Section 138 of The Negotiable Instruments Act, 1881.

However, the complaint should be registered in magistrate court within a month of the expiry of the notice period. Complaint along with related documents and an affidavit when submitted to the court, summon will be issued against the drawer and court proceeding will start. If found guilty drawer can be punished to prison terms of two years and/or fine maximum with double of the amount of the cheque. However, he can go to the session’s court for appeal within one month of judgment from the small court. 

Landmark Judgment on Cheque bounce

In a remarkable judgment given by Delhi High Court in the case of Dayawati v. Yogesh, Kumar Gosain stated a distinction between a conventional criminal case and case under Section 138 of the Negotiable Instrument Act, 1881 and distinct them by saying that offense under this act can refer to compoundable cases. It is legal to refer a criminal compoundable case as one under Section 138 of the NI Act to mediation. Earlier in the cases under 138 Of Negotiable Instrument Act, it could be initiated by the holder of the cheque at his business place.

But in the case of Dashrath Roopsingh Rathod vs. State of Maharashtra & Anr Supreme Court under the bench of justices TS Thakur, Vikramjit Sen, and C Nagappan ruled the cases and held that case has to be initiated at the place where the bank of branch on which cheque was drawn is located. After this ruling, a large number of cases had seen interstate transfer. 

Supreme Court in the case of Dalmia Cement (Bharat) Ltd v M/S. Galaxy Trades & Agencies Ltd specify it's objective behind the enactment of section 138 of the N.I Act the apex court states that to facilitate trade and commerce and giving sanctity to such instruments which can change into money and which are easily transferable from one person to another. In the present day carrying such a bulk amount is not possible so instruments like cheque are required in our daily life and therefore to keep the trust of a reasonable man alive on this instrument such a law is necessary.

Recent amendment

The N.I act which also known as Negotiable Instruments (Amendment) Act,2018 which came into force on 1 September 2018 permits the Court trying an offense related to dishonor of cheque, to direct the drawer to pay interim compensation not above 20% of the amount to the complainant within 60 days of the trial court's order to pay such compensation. [2]

Conclusion

In India, about 35 lakh cases are pending in district courts and To deal with the situation the Supreme court under the Bench of Chief Justice of India and Justice L.N. Rao while seeking a plea filled in January 2005 stated that about half of the pending cases which is approximately 18 lakh are pending because of the absence of accused before the court of trial. The bench also suggested some reforms for the Reserve Bank of India as it is regulating the body for all the banks. Bench recommended that there is also a need to develop software especially for the cases of cheque bounce for the tracking and service of process for accused. RBI may be considering developing a new performance of cheque which includes the purpose of payment and other information to facilitate adjudication of real issues the bench later added. [3]

Apex court also added that there is a need to develop a mechanism to solve the cases of cheque bounce outside the court and asked the National Legal Services Authority to develop a scheme for solving the case at the pre-litigation state.   

[1]https://www.livelaw.in/top-stories/cheque-bounce-cases-appeal-against-aquittal 157450?infinitescroll=1

 [2] https://www.mondaq.com/india/financial-services/812822/section-138-of-negotiable-instruments-act-overview 

[3] https://www.businesstoday.in/current/economy-politics/sc-to-create-mechanism-for-expeditious-disposal-of-cheque-bounce-cases/story/397824.html