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Dishonor Of Cheques

  2. 2. WHAT IS A BILL OF EXCHANGE A "Bill of Exchange" is a negotiable instrument in writing containing an instruction to a third party to pay a stated sum of money at a designated future date or on demand.
  3. 3. WHAT IS A CHEQUE A "cheque" on the other hand is a bill of exchange drawn on a bank by the holder of an account payable on demand. Thus a "cheque" under Section 6 of the NIA is also a bill of exchange but it is drawn on a banker and is payable on demand. It is thus obvious that a bill of exchange even though drawn on a banker, if it is not payable on demand, it is not a cheque.
  4. 4. WHAT IS A POSTDATED CHEQUE <ul><li>A &quot;postdated cheque&quot; is only a bill of exchange when it is written or drawn, it becomes a &quot;cheque&quot; when it is payable on demand. </li></ul><ul><li>The postdated cheque is not payable till the date which is shown on the face of the said document. It will only become cheque on the date shown on it and prior to that it remains a bill of exchange under Sec 5 of the NIA. </li></ul>
  5. 5. WHAT IS A POSTDATED CHEQUE …Contd <ul><li>As a bill of exchange a postdated cheque remains negotiable but it will not become a &quot;cheque&quot; till the date when it becomes &quot;payable on demand&quot;. </li></ul><ul><li>Refer: Anil Kumar Sawhney V. Gulshan Rai 1993-(004)-SCC -0424 –SC </li></ul>
  6. 6. WHAT IS A CHEQUE? … SIMPLIFIED <ul><li>You can order the Bank to pay someone, on your behalf </li></ul><ul><li>You can do this by giving a cheque to the payee </li></ul><ul><li>A cheque is like an order to the bank </li></ul><ul><li>When the payee shows it to your bank, the bank will pay the money </li></ul><ul><li>This is called honoring a cheque </li></ul>
  7. 7. <ul><li>Godrej has received a cheque say from me </li></ul><ul><li>My bank account is in ABN Amro Bank, Sakhar Bhawan, Nariman Point, Mumbai </li></ul><ul><li>Will Godrej send a peon to collect the money from ABN Amro Bank, Sakhar Bhawan, Nariman Point, Mumbai? </li></ul>DEPOSITING A CHEQUE
  8. 8. <ul><li>Godrej’s account is with ICICI Bank, Vikhroli </li></ul><ul><li>Godrej will request its bank ICICI Bank to collect the money on its behalf </li></ul><ul><li>Godrej will do this by simply depositing the cheque in their account with ICICI Bank, Vikhroli </li></ul>DEPOSITING A CHEQUE …Contd
  9. 9. ENDORSING A CHEQUE <ul><li>Godrej has received a cheque </li></ul><ul><li>Godrej will deposit this cheque into their bank i.e. </li></ul><ul><li>ICICI Bank, Vikhroli and receive the payment in 2-3 days if it is a local cheque or about 21 days if it is an outstation cheque (cheques which cannot be drawn on par). </li></ul>
  10. 10. ENDORSING A CHEQUE… Contd <ul><li>What if Godrej needs the money urgently? </li></ul><ul><li>The cheque can be endorsed to a third party say </li></ul><ul><li>me – Apurva Agarwal </li></ul><ul><li>I can give you cash against the cheque at a </li></ul><ul><li>discount </li></ul><ul><li>I will deposit the cheque into my account and my </li></ul><ul><li>bank will collect the money on my behalf </li></ul>
  11. 11. ENDORSING A CHEQUE… Contd <ul><li>Endorsement is done on the reverse of the </li></ul><ul><li>cheque </li></ul><ul><li>Normally only bearer and simple crossed </li></ul><ul><li>cheques can be endorsed. </li></ul>
  12. 12. THE PAYEE <ul><li>A cheque will mostly be paid to the person named as payee </li></ul><ul><li>Making out a cheque in the name of ‘Mr. Singh’ is not a good idea. Say ‘Mr. Satbir Singh’ instead </li></ul><ul><li>Suppose a payment has to be made to ‘ Godrej Soaps Limited .’ The full name has to be written. Just saying ‘Godrej’ is not enough. </li></ul>
  13. 13. DATING THE CHEQUE <ul><li>A cheque can not be paid before the date which is put on it </li></ul><ul><li>The cheque is valid only for six months from the date its drawn </li></ul><ul><li>A cheque dated March 6, 1998 was deposited in the bank on September 5, 1998 </li></ul>
  14. 14. <ul><li>The cheque reached the paying bank on </li></ul><ul><li>September 7, 1998. </li></ul><ul><li>The six months had elapsed. Hence the </li></ul><ul><li>cheque was returned. Such cheques are </li></ul><ul><li>known as stale cheques. </li></ul><ul><li>What happens if you put an impossible date </li></ul><ul><li>on the cheque? For example, November 31, </li></ul><ul><li>2000? The bank will treat the date as 1st </li></ul><ul><li>December 2000. </li></ul>DATING THE CHEQUE … Contd
  15. 15. AMOUNT IN WORDS <ul><li>Why do you have to write the amount in figures (numerals) and in words? </li></ul><ul><li>To make it difficult for people to alter the amount </li></ul>
  16. 16. AMOUNT IN WORDS … Contd <ul><li>In most cases, if the amount in words and figures do not match, then the bank will return the cheque. </li></ul><ul><li>However, if the bank does not suspect an alteration, then the bank can pay the amount in words. </li></ul>
  17. 17. STOP PAYMENT <ul><li>If the cheque is not already paid, you can ask the bank to stop payment. </li></ul><ul><li>For doing this, you should issue the instructions in writing. </li></ul><ul><li>Take an acknowledgement. Some foreign banks also accept the instructions on phone. Take the instructions number. </li></ul>
  18. 18. STOP PAYMENT … Contd <ul><li>The stop payment remains effective for six months. </li></ul><ul><li>If the cheque is paid due to an oversight by the bank, the bank will bear the loss. </li></ul><ul><li>For issuing the instructions, you must give the correct cheque number, payee’s name, amount and date. </li></ul>
  19. 19. DISHONOR OF CHEQUES <ul><li>Section 138 of the NIA provides that the dishonor of a cheque for the reasons </li></ul><ul><li>a) &quot;insufficiency of funds&quot; or </li></ul><ul><li>b) the amount covered by the cheque was not arranged for </li></ul>
  20. 20. DISHONOR OF CHEQUES … Contd <ul><ul><li>The said provision was incorporated into the NIA to enhance the acceptability of cheques. </li></ul></ul><ul><ul><li>The said section would apply only when the cheque is presented for payment within the period of its validity </li></ul></ul>
  21. 21. WHEN DISHONOUR OF CHEQUE IS AN OFFENCE <ul><li>Refer: K. Bhaskaran v. Sankaran Vaidhyan Balan 1999 ALL MR (Cri) 1845 (SC)= 1999 (4) ALL MR452 (SC) </li></ul><ul><li>1. Ingredients of the offence under </li></ul><ul><li>s. 138 </li></ul><ul><li>Drawing of the cheque </li></ul><ul><li>b) Presentation of the cheque to the bank </li></ul>
  22. 22. WHEN DISHONOUR OF CHEQUE IS AN OFFENCE …Contd <ul><ul><ul><li>Returning the cheque unpaid by the drawee bank </li></ul></ul></ul><ul><ul><ul><li>d) Giving notice in writing to the drawer of the cheque demanding payment of the cheque amount </li></ul></ul></ul><ul><ul><ul><li>e) Failure of the drawer to make payment within 15 days of the receipt of the notice </li></ul></ul></ul>
  23. 23. DRAWING OF A CHEQUE <ul><li>Cheque should have been drawn by the drawer in payment of a legal liability to discharge the existing debt. </li></ul><ul><li>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. </li></ul><ul><li>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 </li></ul>
  24. 24. DRAWING OF A CHEQUE …Contd <ul><li>It will be for the accused to prove the contrary i.e., there is no debt or any other liability </li></ul><ul><li>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 </li></ul>
  25. 25. <ul><ul><ul><li>PRESENTATION OF CHEQUE </li></ul></ul></ul><ul><li>The presentation of cheque should be within its validity period i.e. six months </li></ul><ul><li>The question arises as to which bank the cheque should reach within the validity period, is it that of drawer’s bank or it is enough if the cheque is presented by the payee to his bank before the validity periods. </li></ul>
  26. 26. <ul><ul><ul><li>PRESENTATION OF CHEQUE …Contd </li></ul></ul></ul><ul><li>The courts are divided on the issue. </li></ul><ul><li>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. </li></ul>
  27. 27. <ul><ul><ul><li>RETURNING OF THE CHEQUE UNPAID </li></ul></ul></ul><ul><li>Lot of controversy had arisen on the issue </li></ul><ul><li>What reasons are relevant to hold the drawer of </li></ul><ul><li>the cheque criminally responsible for bouncing </li></ul><ul><li>of a cheque </li></ul><ul><li>It is not what the bank says in its return memo </li></ul><ul><li>that is relevant but the actual position as on the </li></ul><ul><li>date when the cheque reaches the drawer bank </li></ul>
  28. 28. Case Laws J. Veeraraghavan v. Lalith Kumar 1995 CRI L J 1882 Any reason for dishonour is an offence. The Marginal Note of S. 138 of the NIA states Dishonour of cheque for insufficiency etc. of funds in accounts&quot; addition of word &quot;etc.&quot; cannot be considered to be an accident
  29. 29. Case Laws … Contd Modi Cements v. Shri Kunchil Kumar Nandi (1998 2 JT SC 198) Even if notice is issued stopping payment before the payee deposited the cheque in his bank, offence is complete.
  30. 30. Case Laws … Contd Nepc Micon Ltd. And Others, Appellants V. Magma Leasing Ltd. Respondent. 1999-(086)-AIR -1952 –SC When the cheque is returned by a bank with an endorsement “account closed&quot;, it would amount to returning the cheque unpaid because &quot;the amount of money standing to the credit of that account is insufficient to honour the cheque&quot; as envisaged in s. 138 of the Act&quot;
  31. 31. Case Laws … Contd If the cheque is dishonoured because of “stop payment&quot; instruction to the bank, Section 138 would get attracted. It also amounts to dishonour of the cheque within the meaning of Section 138 when it is returned by the bank with the endorsement like (i) in this case, &quot;referred to the drawer&quot; (ii) &quot;instructions for stoppage of payment&quot; and stamped (iii) &quot;exceeds arrangement&quot;.
  32. 32. Case Laws … Contd Sasseriyil Joseph v. Devassia [2001 Cri. L. J (Ker)] A cheque issued for the time barred debt, if dishonoured, the drawer cannot be convicted under Section 138 of NIA as debt was not legally recoverable
  33. 33. Case Laws … Contd Shri Sai Steel v. State [2002 Cri. L. J 3193 (AP)] The cheques were issued by “X” in favour of “Y”. Y discounted the cheques with a Bank. The cheques when deposited were dishonoured. The Bank, holder in due course cannot file complaint against “X”.
  34. 34. NOTICE <ul><li>It is the non-payment of dishonoured cheque within fifteen days from the receipt of the notice that constitutes an offence. </li></ul><ul><li>Issuing of a cheque and its dishonour is not an offence. </li></ul><ul><li>Any demand made after the dishonour of cheque will constitute a notice. </li></ul>
  35. 35. NOTICE … Contd <ul><li>It is not necessary that the notice should be sent by Registered Post alone, it could be sent even by fax. </li></ul><ul><li>It is not necessary that the notice should be in any particular form or style. </li></ul><ul><li>It is held by the Supreme Court that while the cheque could be presented at any number of times however there shall be only one Notice. </li></ul>
  36. 36. ISSUE <ul><li>Whether dishonour of the cheque on each occasion of its presentation gives rise to a fresh cause of action within the meaning of Sec. 142 (b) of NIA? </li></ul><ul><li>No - A competent court can take cognizance of a written complaint of an offence u/s138 if it is made within 1mth of the date on which the cause of action arises u/s142 (c) gives it is a restrictive meaning. It is the failure to make payment within 15 days from date of receipt of notice which will give rise to cause of action u/s 142 (c) cause of action can arise only once. </li></ul>
  37. 37. ISSUE … Contd <ul><li>Therefore it is essential that the notice should be perfect and in conformity with law. </li></ul><ul><li>It is common mistake committed by most of the payees that as soon as the cheque is returned unpaid to write a letter to the drawer threatening him that in case he does not pay against the dishonoured cheque legal action will be taken etc. Such letter will also be construed as a notice. </li></ul>
  38. 38. ISSUE … Contd <ul><li>As stated already that non-payment of cheque amount within the grace period of fifteen days from the date of receipt of the notice constitutes an offence and therefore liable to prosecuted for the criminal offence so committed </li></ul>
  39. 39. LIMITATION <ul><li>NIA is a special legislation hence the time limits that have been laid down has to be strictly followed. </li></ul><ul><li>Any lapse in adhering to the schedule, shall take away a cause of action under Sec. 138. </li></ul><ul><li>The time limits placed cannot be condoned by the Courts. </li></ul>
  40. 40. LIMITATION.. Contd <ul><ul><li>The time limits are </li></ul></ul><ul><li>1. Cheque should be presented to the bank for encashment within its validity period i.e. 6 mths </li></ul><ul><li>2. Within 30 days from the receipt of return memo indicating reason of dishonour, a notice should be sent demanding the amt of dishonoured cheque to be paid within 15 days of the receipt of the notice </li></ul>
  41. 41. 3. If the drawer does not pay the amount of dishonoured cheque within the grace period of fifteen days, 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. LIMITATION.. Contd
  42. 42. Saketh India Ltd. v. India Securities Ltd. 1999 Cri LJ 1822 (SC) Limitation for filing complaint limit defined as from a particular day - first day to be excluded. Period of 15 days from the date of receipt of notice ending on 14-10-1995 - 30 days period begins on 15-10-1995 Complaint filed on 15-11-1995 - within time. Case Laws
  43. 43. Case Laws… Contd Haru Das Gupta v. St. of West Bengal 1972 (1) SCC 639 Held on the facts, that the period of limitation of 15 days expired on 14-10-1995. So the cause of action for filing the complaint would arise from 15-10-1995. That day (15 Oct) was to be excluded for counting the period of one month - The Complaint filed on 15-11-1995 was in time)
  44. 44. Case Laws … Contd Amit Desai v. Shine Enterprises [2000 Cri. L. J. 2386 (AP)] Legal proceedings under section 138 of NIA filed by an unregistered Partnership firm is liable to be quashed as and when there is a bar of filing a suit by unregistered Partnership firm
  45. 45. <ul><li>Refer: K. Bhaskaran v. Sankaran Vaidhyan Balan 1999 (6) SCALE 272 (Judgment dated Sept.29,1999) </li></ul><ul><li>Complaint can be filed at any of the place: - </li></ul><ul><li>1.Where the cheque was drawn. </li></ul><ul><li>2.Where the cheque was presented for encashment. </li></ul><ul><ul><ul><ul><li>JURISDICTION </li></ul></ul></ul></ul>
  46. 46. 3. Where the cheque was returned unpaid by drawee bank. 4. Where notice in writing was given to drawer of cheque demanding payment. 5. Where drawer of cheque failed to make payment within 15 days of receipt of notice. JURISDICTION… Contd
  47. 47. <ul><li>Each of the five acts constituting offence could be done at 5 different localities. Hence one of the Courts exercising jurisdiction in one of the five local areas can become the place of trial for the offence under sec. 138 of the NIA. </li></ul>JURISDICTION… Contd
  48. 48. <ul><li>The drawer may be punished with imprisonment for a term which may extend to two years, or </li></ul><ul><li>Fine which may extend to twice the amount of the cheque, or </li></ul><ul><li>With both </li></ul>PENALTY
  49. 49. PENALTY… Contd <ul><li>The magistrate can make liberal use of Sec. 357(3) of the Code. A Magistrate can award any sum as compensation to alleviate the grievance of the complainant by making resort to Sec. 357(3) of the Code. </li></ul>
  50. 50. <ul><li>Who is liable in case a cheque issued by a company is dishonoured? </li></ul><ul><li>Every person who, was responsible to the company, for the conduct of the business of the company, as well as the company itself </li></ul>ISSUE
  51. 51. ISSUE… Contd <ul><li>If the offence has been committed with the consent or connivance of, or is attributable to any neglect on the part of any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of that offence. </li></ul>
  52. 52. ISSUE… Contd <ul><li>The burden will lie on that person to prove that the offence was committed without his knowledge or that he had exercised all due diligence to prevent the commission of such offence. </li></ul>
  53. 53. <ul><li>Civil and criminal action is not mutually exclusive but clearly co-extensive. </li></ul><ul><li>Therefore civil case is no bar for criminal proceedings. </li></ul>CIVIL & CRIMINAL CASES
  54. 54. CIVIL & CRIMINAL CASES… Contd Medchl Chemicals and Pharma Pvt. Ltd. v. Biological E. Ltd. 2000 Cri.L.J. 1487 (SUPREME COURT) In fact, many a cheatings were committed in the course of commercial and also money transactions; --- the fact that there is a remedy provided for beach of contract, that does not by itself clothe the Court to come to a conclusion that civil remedy is the only remedy available
  55. 55. CIVIL & CRIMINAL CASES… Contd Both criminal law and civil law remedy can be pursued in diverse situations. As a matter of fact they are not mutually exclusive but clearly co-extensive and essentially differ in their content and consequence. The object of criminal law is to punish an offender who commits an offence against a person, property or the State for which the accused, on proof of the offence, is deprived of his liberty and in some cases even his life
  56. 56. CIVIL & CRIMINAL CASES… Contd This does not, however, affect civil remedies at all for suing the wrongdoer in case like arson, accidents etc. It is anathema to suppose that when a civil remedy is available, a criminal prosecution is completely barred.
  57. 57. CONCLUSION Recap CONCLUSION Recap a) Any number of times till NO Legal Notice of Dishonour and Demand of Cheque amount is made. Number of times a Cheque can be presented for encashment in bank (in Case of dishonour) 2 Six (6) English Calendar Months from the date mentioned on the Cheque (includes post-dated Cheques). Time Period of Presentation of Cheque to banks for encashment: 1
  58. 58. CONCLUSION Recap…Contd Thirty (30) days from date of intimation of dishonour of Cheque by bank to the customer. Time Period for issuance of Legal Notice of Dishonour of Cheque and Demand 3 (b) Once a Legal Notice about dishonour of cheque & demand of cheque amount is made, the cheque cannot be presented again (if you intent to file a case).
  59. 59. CONCLUSION Recap…Contd Fifteen (15) days from Date of Receipt of Legal Notice of Demand. Time Period for Payment of Dishonored Cheque amount by Drawer 4 It would be in your interest to engage Lawyer for issuance of Notice – A large number of Cases fail in Court because of defects and mistakes in legal Notice.
  60. 60. CONCLUSION Recap…Contd Criminal Complaint can be filed before Court After Fifteen (15) days but within forty-five (45) days [i.e., between 15th day to 45th day] from Date of Receipt of Legal Notice of Demand by the Drawer if no payment of Cheque amount is made by him. Time Period for filing Criminal Complaint before Court: 5
  61. 61. CONCLUSION Recap…Contd Suit can be filed before Court within Three (3) years from the date mentioned on the Cheque (includes post-dated cheques). Time Period for filing Suit before Court: 6
  62. 62. CONCLUSION Recap…Contd <ul><li>It is not necessary to file both the Cases (Criminal Complaint & Money Suit), however, it is always advisable to file both the Cases together. </li></ul><ul><li>Further Criminal Complaint and Money Suit can be filed on the same day/date or on different days/ dates, however, they have to be within their limitation period. </li></ul>
  63. 63. Any questions ? ? ?
  64. 64. Contact Us <ul><li>Universal Legal </li></ul><ul><li>5th Floor, Kimatrai Building </li></ul><ul><li>77/79 Maharshi Karve Road </li></ul><ul><li>Mumbai – 400 002 </li></ul><ul><li>Phone:22034293, 56073927 </li></ul><ul><li>Fax: 22039845 </li></ul><ul><li>E-mail [email_address] </li></ul>