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Brief notes on Section 138, THE NEGOTIABLE INSTRUMENTS ACT 1881

The main object of this piece of legislation is to inculcate faith in the efficacy of banking operations and credibility in transacting business on negotiable instruments. Section 138, THE NEGOTIABLE INSTRUMENTS ACT 1881 is intended to prevent dishonesty on the part of the drawer of negotiable instrument to draw a cheque without sufficient funds in his account maintained by him in a bank and induces the payee or holder in due course to act upon it. The dishonour of cheque is now a criminal offence punishable by imprisonment up to one year or with fine up to the double the amount of dishonored cheque or with both. Advent of cheques in the market have given a new dimension to the commercial and corporate world, its time when people have preferred to carry and execute a small piece of paper called Cheque than carrying the currency worth the value of cheque. Dealings in cheques are vital and important not only for banking purposes but also for the commerce and industry and the economy of the country. But pursuant to the rise in dealings with cheques also rises the practice of giving cheques without any intention of honoring them. Before 1988 there being no effective legal provision to restrain people from issuing cheques without having sufficient funds in their account or any stringent provision to punish them in the vent of such cheque not being honoured by their bankers and returned unpaid. Of course on dishonour of cheques there is a civil liability accrued. However in reality the processes to seek civil justice becomes notoriously dilatory and recover by way of a civil suit takes an inordinately long time. To ensure promptitude and remedy against defaulters and to ensure credibility of the holders of the negotiable instrument a criminal remedy of penalty was inserted in Negotiable Instruments Act, 1881 in form of the Banking, Public Financial Institutions and Negotiable Instruments Laws (Amendment) Act, 1988, which were further, modified by the Negotiable Instruments (Amendment and Miscellaneous Provisions) Act, 2002[3]. This article endeavors to elucidate the penal provision [4] light of the amendments and the judicial interpretations. Scope Of the ten sections comprising the chapter of the Act, section 138 creates statutory offence in the matter of dishonour of cheques on the ground of insufficiency of funds in the account maintained by a person with the banker. Section 138 of the Act can be said to be falling either in the acts which are not criminal in real sense, but are acts which in public interest are prohibited under the penalty or those where although the proceeding may be in criminal form, they are really only a summary mode of enforcing a civil right. Normally in criminal law existence of guilty intent is an essential ingredient of a crime. However the Legislature can always create an offence of absolute liability or strict liability where mens rea is not at all necessary. While elucidating on this aspect the Kerala High Court in K. S. Anto v. Union of India held that: "Knowledge or reasonable belief, that pre requisite could be statutorily dispensed with in appropriate cases by creating strict liability offences in the interest of the Nation." Further the creation of the strict liability is an effective measure by encouraging greater vigilance to prevent usual callous or otherwise attitude of drawers of cheques in discharge of debts or otherwise attitude of drawers of cheques in discharge of debts or otherwise. The words as appearing in clause (b) of S. 138 cannot be construed even to imply failure without reasonable cause in view of the explicit language in which the provision is couched, the principle of strict liability incorporated in the main enacting clause. Circumstances of Dishonour: The circumstances under which dishonour of cheque takes place or that may contribute to the situation would be irrelevant and are required to be totally ignored. In Rakesh Nemkumar Porwal v. Narayan Dhondu Joglekar the Bombay High Court held that:

2 "A clear reading of Section 138 leaves no doubt in our mind that the circumstances under which such a dishonour takes place are required to be totally ignored. In such case, the law only takes cognizance of the fact that the payment has not been forthcoming and it matters little that any of the manifold reasons may have caused that situation." Five ingredients of the offence under s. 138. The offence under Sec. 138 of the Act can be completed only with the concatenation of a number of acts. Following are the acts, which are components of the said offence; 1. Drawing of the cheque, 2. Presentation of the cheque to the bank, 3. Returning the cheque unpaid by the drawee bank, 4. Giving notice in writing to the drawer of the cheque demanding payment of the cheque amount. 5. Failure of the drawer to make payment within 15 days of the receipt of the notice. It is not necessary that all the above five acts should have been perpetrated at the same locality. It is possible that each of those five acts could be done at five different localities. But concatenation of all the above five is sine qua non for the completion of the offence under Sec. 138 of the Act. Drawing of a Cheque The drawer in payment of a legal liability to discharge the existing debt should have drawn cheque. Therefore any cheque given say by way of gift would not come within the purview of the section. It should be a legally enforceable debt; therefore time barred debt and money-lending activities are beyond its scope. The words any debt or any other liability appearing in section 138 make it very clear that it is not in respect of any particular debt or liability The presumption which the Court will have to make in all such cases is that there was some debt or liability once a cheque is issued. It will be for the accused to prove the contrary. i.e., there is no debt or any other liability. This of course unless the prosecution restricts itself to a particular liability. The Court shall statutorily make a presumption that the cheques were issued for the liability indicated by the prosecution unless contrary is to be proved. Presentation of Cheque The presentation of cheque should be within its validity period. Generally a cheque is valid for six months, but there are cheques whose validity period is restricted to three months etc. The question arises as to which bank the cheque should reach within the validity period, is it the payee to his bank presents that of drawers bank or it is enough if the cheque before six months. The courts are divided on the issue. But common sense demands that the cheque should reach the drawer bank within the period of validity as it is that bank that either pays or rejects payment as per the situation existing on that day. Returning Of the Cheque Unpaid Lot of controversy had arisen on the issue. What reasons are relevant to hold the drawer of the cheque criminally responsible for bouncing of a cheque. The case laws on the subject have now made the position clear. It is not what the bank says in its return memo that is relevant but the actual position as on the date when the cheque reaches the drawer bank whether there were enough funds in the drawer account to honour the cheque. Notice Notice is a very important stage. It is the non-payment of dishonoured cheque within fifteen days from the receipt of the notice that constitutes an offence. Issuing of a cheque and its dishonour is not an offence. The offence is when the drawer receives a notice from the payee and he fails to pay the dishonoured cheque amount within the grace period of 15 days that constitute an offence. Any demand made after the dishonour of cheque will constitute a notice. It is not necessary that the notice should be sent by Registered Post alone, it could be sent even by fax. It is not necessary that the notice should be in any particular form or style. What is essential is that there should be a demand to pay the dishonoured cheque amount.

3 Limitation These being a special legislation certain time limits have been laid down and they should be strictly followed. Any lapse in adhering to the schedule, shall take away a cause of action under Sec. 138. The time limits placed cannot be condoned by the Courts. Therefore the question of making an application for condonation of delay as in the case of civil does not arise at all under the said section. What then are the limitations one has to keep in one mind and follow them strictly to prosecute the drawer of cheque who has failed to pay the said sum within fifteen days from the receipt of the notice? Cheque should be presented to the bank for encashment within its validity period. Within fifteen days from the receipt of return memo indicating reason of dishonour, a notice should be sent demanding the amount of dishonoured cheque. If the drawer does not pay the amount of dishonoured cheque within the grace period, a complaint thereafter should be filed within one month in the relevant court of Metropolitan Magistrate/Judicial Magistrate as the case may be, having jurisdiction.