What is a cheque?

A cheque is a negotiable instrument issued by the person having a bank account drawn upon such bank and directs it to pay the amount mentioned in the instrument to the person or company whose name is on the instrument. A cheque is a convenient option for payment of money as it is handy also the risk of theft and loss is reduced to some extent and, thus it is a safer option to do financial transactions.

There are three parties in the cheque:

• -Drawer: who is the maker of the cheque.
• -Drawee (bank): who pays the amount of the cheque on behalf of the drawer.
• -Payee/ holder: To whom money payment has to be received.

Note: Payee and drawer can be one if a cheque is issued to withdraw money from his bank for his use.

The Negotiable Instruments Act, 1881 (NIA) under section 6 defines a cheque. That provides a cheque comes under the category of a bill of exchange as it is a:

• -Written instrument,
• -Signed by the drawer,
• -Contains unconditional order to pay,
• -Directs the specified bank to pay a certain sum of money to a person named on cheque or bearer of the cheque, and
• -Cheque is payable only on-demand.

Talking about types of cheques in India, there are different types of cheques such as:

• – Bearer cheque
• – Crossed cheque
• – Order cheque
• – Open cheque
• – Stale cheque
• – Traveler’s cheque
• – Post-dated cheque
• – Self cheque
• – Banker’s cheque

According to section 6, cheques are in two forms one is in electronic form and the other in the form of a truncated cheque.

• -A cheque in electronic form means a cheque drawn in electronic mode through a computer that has an exact image of the paper cheque generated, signed, and written not by pen but by digital signature and asymmetric cryptosystem. All the transactions took place in electronic form only and, at no stage of the transaction, it comes in paper form.
• -A Truncated cheque means a cheque drawn in physical or paper form later during the clearing cycle time, clearing house (managed or recognized by RBI) or, the bank generates an electronic image of such cheque and further all transactions done in electronic mode only.

What is a Dishonoured Cheque or Bounced Cheque?

A cheque is a written promise made by the drawer to pay a certain sum of money to the person entitled to receive such payment (payee) or bearer of the cheque. The drawer makes a cheque in favor of the payee, against whom he has some liability or debt, and further, the drawee bank has to make the payment to the payee given on the cheque. Drawee bank on the grounds of insufficient funds in drawer account or the amount in cheque exceeds the limit, upon which drawer and drawee bank agreed that cheque is unable to draw above such limit, the bank declines to pay the amount on such ground to the payee. Such refusal of payment by the bank is called dishonour of the cheque (cheque bounced). A ‘cheque return memo’ mentioning the reason for the dishonour of the cheque is issued to the payee by the drawee bank.

Section 138 of NIA makes cheque bounce a criminal offense for the reasons stated above and punishes the drawer with imprisonment expanding to 2 years or a fine double the amount of cheque or both. Section 138 of NIA provide some conditions to satisfy to bring a criminal case against drawer for the dishonour of cheque that is:

• – The cheque holder has to hand over the cheque to the drawee bank within three months from the date cheque has been drawn or within the time of its validity, whichever is first (Section 138(a)).
• – When the Payee of cheque or holder receives a cheque return memo from the drawee bank, he has to make a demand notice for payment of money in writing to the drawer of the cheque within 30 days from the date of receiving the cheque return memo (Section 138(b)).
• – When the drawer fails to make payment within 15 days from the date, he received demand notice of payment from the payee or holder (Section 138(c)).

All above condition gets fulfill then drawer will be made liable under section 138 of negotiable instrument Act and case will be filed against him for cheque bounce offense.

The Supreme court held in Yogendra Pratap Singh VS Savitri Pandey (2014) 10 SCC 713 that criminal liability upon drawer will not stand under section 138 of NIA if a complaint against the drawer for cheque dishonour gets filed before the expiry of 15 days given in section 138 clause(c).

Can a company or firm be made liable for the offence of dishonour of cheque under section 138?

When a company draws a cheque for payment, but it gets dishonoured under section 138, every person during the offence of cheque bounce committed was in charge or responsible for the conduct of the business of the company, the company, and all such officials will be held guilty under section 138 of NIA. A criminal liability upon a company is not possible due to its artificial nature except, under section 141 of the Act, where it allows punishing the company and people managing it who were involved in such commission of the offence. Section 141 is an extension of section 138 that makes drawer only criminal liable, considering that criminal liability under section 141 extends upon the officers managing the company and the company involved in cheque dishonour.

Exceptions:

• – If a person can prove that perpetration was without his knowledge or all due diligence was exercised by such person to prevent the commission of an offence under section 138, he will not be made liable under section 141.
• – If a person got nominated as a director by central or state government or financial corporation owned or governed by the central government, then such person will not be made liable for the offence of cheque dishonour.

Whenever a company negligently or with the consent of the director, secretary, manager, or other officers commit an offence under section 138, then all such persons will be liable for punishment accordingly.

The Supreme court held in G. Ramesh VS Kanike Harish Kumar Ujwal that the word ‘company’ used in section 141 also includes an association of person or partnership firm.

Cognizance of offence

The proceedings for an offence of cheque bounce occur when a written complaint is given by the payee or the holder in due course within one month from the date the other party fails to pay the sum within 15 days on receiving the payee’s demand notice (section 138(C)). This period of filing a complaint exceeds when there is reasonable cause for delay in filing. The case under section 138 will be in the jurisdiction of the courts not inferior to that of metropolitan magistrate or judicial magistrate of the first class.

Jurisdiction

In Dashrath Rupsingh Rathod VS State of Maharashtra (2014), the Supreme court held that complaint under section 138 of NIA can be filed only in Courts within whose local jurisdiction the cheque got dishonour by the drawee bank on which payee asked for payment.

The Negotiable Instruments (Amendment) Act, 2015 was passed to invalidate the effect of Dashrath Rupsingh Rathod’s case. Subsection (2) of section 142 enacted by the amendment that provides the place of trial of offences of cheque bounce case will be:

• – If payment through a bank account

Payee or holder in due course has an account in banks branch then the court trial of the dishonoured cheque will be in that city where such bank branch is situated.

• – If payment is not through a bank account

The city where the drawer bank branch is situated will be the place of a court trial.

Summarily Trial for the Offence of Cheque Dishonour

Summarily trial means the trial of a case by the Courts, while not observing detailed formalities so that there is a speedy trial. It aims for quick disposal of the petty case. Only seniors and experienced judicial magistrate officers are empowered to try cases summarily. In a cheque bounce case, the trial will be proceeded by the Judicial magistrate 1st class or by the metropolitan magistrate and, proceedings taken up summarily following the Code of Criminal Procedure (Sections 262 -265). Summarily trial has to be decided within six months from the date of filing of the complaint.

In Summarily Trial, the magistrate can order a sentence for imprisonment not exceeding one year, and a fine should not exceed Rs 5000. Whenever the Courts at the time of Summarily Trial finds that the case is such that punishment for imprisonment will exceed one year or it is undesirable to try the case summarily, then the Court trial will be in a manner provided by the code.

Interim compensation

During the Court trial of the cheque bounce under section 138, the magistrate can order the drawer of the cheque for the payment of compensation to the complainant for an interim period under section 143-A:

• – In summarily trial or summons cases where drawer pleads not guilty to the accusation made against him and,
• -In any other case, where charges framed against the drawer.

The payment demand from the drawer should not exceed 20% of the sum in the cheque and has to be paid within 60 days from the date when the order to pay interim compensation was made (Prospective effect). The demand for payment can further exceed 30 days by the court on the satisfaction of sufficient cause shown by the drawer on delaying of such payment. The interim compensation collected by the complainant from the drawer with interest (according to the bank rate published by RBI) is reimbursed to the drawer when declared innocent (acquitted). The complainant has to pay back the amount to the drawer within 60 days from the date of such order, and it can be further extended to 30 days by the court on the satisfaction of sufficient cause shown by the complainant.

In case GJ Raja VS Tejraj Surana, Criminal appeal no. 116 of 2019, the Supreme court held that section 143-A of the negotiable instruments Act has no retrospective effect for the payment of interim compensation to the complainant during the pendency of the case by the drawer of the cheque. So, section 143-A has a prospective effect.

Compoundable offence

An offence of cheque dishonour can be resolved by a mutual settlement of parties, irrespective of the amount mentioned in it (Section 147).

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