This presentation talks about the various aspects of Dishonour of cheque under Negotiable Instrumenmts Act 1881. The presentation has been prepared as a project work and from basic research and understanding of law. It must not be taken as any guidance, advise or any advertising on any part.

2. The following presentation is divided
into two parts:-
1.Definition of Dishonour of Cheque
under Section 138 The Negotiable
Instruments Act 1881
2.Recent Judgements and its effects

3. Section 138
Section 138 provides that Dishonour of Cheques may be for
certain reasons:-
1.Insuficiency of Funds or
2. that it exceeds the amount arranged to be paid from
that account by an agreement made with that bank

4. When cause of action arises?
1. A person must have drawn a cheque on a bank account maintained by
him.
2. The cheque should have been issued in discharge, in whole or in part, of
any debt or other liability.
3. The cheque has been presented to the bank within the period of its
validity i.e. 3 months(as per RBI guidelines with effect from from 1 April
2012 validity is 3 months)
4. The cheque is returned by the bank unpaid, either because of funds
insufficient or it exceeds the amount arranged to be paid.
5. The payee makes a demand for the payment by giving a notice in
writing, within 30 days of the receipt of information by him from the
bank.
6. The drawer fails to make payment of the said amount of money within
15 days of the receipt of the said notice.
7. Complaint is made within one month of the date on which the cause-of-
action arises.

5. Bouncing of a cheque invites criminal prosecution under
section 138 of The Negotiable Instruments Act, 1881.
Punishment for the offence under section 138 of NI Act
is imprisonment up to two years or fine which may
extend to twice the cheque amount or both.
The offence is bailable, compoundable and non-
cognizable.
PUNISHMENT-

6. Limitation
NIA is a legislation whereby the time
limit given must be strictly followed.
Any lapse in adhering to the schedule,
shall take away a cause of action
under section 138.

7. The time limits are:-
1. Cheque should be presented to the bank for
encashment within its validity period i.e. 3 months.
2. Within 30 days from the receipt of return memo
indicating reason of dishonour a notice should be sent
demanding the amount of dishonoured cheque to be
paid within 15 days of the receipt of the notice.

8. 3. If the drawer does not pay the
amount of dishonoured cheque
within the grace period of 15 days,
a complaint thereafter should be
filed within one month in the
relevant court of Metropolitan
Magistrate /Judicial Magistrate
First Class [SEC 142(c)]

9. CHEQUE RETURN MEMO
Return Memo is the most important document while
filing a complaint u/sec 138 as this document by the bank
mentions the reason for dishonour.

10. K. Bhaskaran v. Sankaran Vaidyan
Balan (AIR 1999-7 SC-570)
In this case the apex court held regarding the
territorial jurisdiction as follows:-
The complaint can be filed at any of the place-
1.Where the cheque was drawn
2.Where the cheque was presented for
encashment
3.Where the cheque was returned unpaid by the
drawee bank

11. 4. Where notice was given to drawer of cheque
demanding payment and drawer of cheque failed
to make payment within 15 days of receipt of
notice.
 Here each of these acts constituting offence
can be done at different places. Hence one of
the court exercising jurisdiction in one of the
these local areas can become the place of trial
for the offence under section 138 NIA.
 The above is overruled in Dashrath case.

12. SUPREME COURT CLARIFIES
TERRITORIAL JURISDICTION
(DISHONOUR OF CHEQUES)
• CASE-
DASHRATH RUPSINGH RATHOD VS. STATE
OF MAHARASHTRA (2014) 9 SCC 129
ISSUE:- TERRITORIAL JURISDICTION

13. Before this judgment the legal position
was as follows –
• Let us say a party X based in Mumbai issued a
cheque to a party Y of Kolkata.
• The cheque was drawn on a bank of Mumbai.
• The cheque was presented by Y to his bank in
Kolkata. The cheque bounced.
• Y issued a notice to X demanding payment for
the bounced cheque. X did not pay.
• Y would file a complaint with the Magistrate at
Kolkata (though he also had the option of filing
at Mumbai).

14. After the judgment dated 1st August
2014, Y will have to necessarily come to
Mumbai to file the complaint.
The Supreme Court has made it
mandatory that the complaint related
to cheque bouncing must be filed only
where the drawee bank is located.
After the judgment

15. Reasoning of Judgement:-
 Cause of action arises on fulfilling the conditions in
proviso (presentation of cheque within validity, notice
demanding payment and drawers failure to pay etc.)
 Once the cause of action accrues to the complainant,
the jurisdiction of the court to try the offence shall be
determined by reference to the place where the
cheque is dishonoured.
 The general rule stipulated under Section 177 of CrPC
applies to cases under Section 138 of the NIA 1881.
Prosecution in such cases can, therefore, be launched
against drawer of the cheque only before the Court
within whose jurisdiction the dishonour takes place.

16. Impact of the Dashrath Rathod ‘s judgment:
1.Principle laid down by this judgment will be
prospective in operation.
2. In respect of pending cases:-
A. Cases in which trial has commenced: Cases in
which summoning and appearance of the accused
has taken place and recording of evidence has
commenced will continue at the same court.
B. Cases pending at the pre summoning stage:
Cases in which summons have not been issued will
be maintainable only at the place where the cheque
stands dishonored. Even though evidence is led on
affidavit or by oral statement, further proceedings
can not continue.

17. The court placed reliance on the judgement
in the following cases:-
(1)Harman Electronics (P) Ltd vs. National
Panasonic India (P) Ltd(2009) 1 SCC 720
(2) Ishar alloys steels vs. Jayaswal Neco Ltd
reported in (2001)3 SCC 609

18. M/s. Indus Airways Pvt Ltd. & Ors vs. M/s. Magnum
Aviation Pvt. Ltd.& Anr[2014 (4) SCALE 645]
ISSUE:-Whether the post-dated cheques issued
by the appellant(purchasers) as an advance
payment in respect of purchase orders could be
considered in discharge of legally enforceable
debt or other liability, and, if so, whether the
dishonour of such cheques amounts to an
offence under Sec138 of the Negotiable
Instruments Act, 1881 (for short, ‘the N.I.Act’) ?

19.  Section 138 treats dishonoured cheque as an
offence, if the cheque has been issued in
discharge of any debt or other liability.
 The explanation in the Act leaves no manner
of doubt that to attract an offence under
Section 138, there should be legally
enforceable debt or other liability subsisting
on the date of drawal of the cheque.
 The payment by cheque in the nature of
advance payment indicates that at the time
of drawal of cheque, there was no existing
liability.

20. H
E
L
D
• 1.If at the time of entering into a contract, it
is one of the conditions of the contract that
the purchaser has to pay the amount in
advance and there is breach of such
condition then purchaser may have to make
good the loss that might have occasioned to
the seller but that does not create a criminal
liability under Sec 138.
• 2.For a criminal liability to be made out
under Section 138, there should be legally
enforceable debt or other liability subsisting
on the date of drawal of the cheque.

21. 3. If a cheque is issued as an advance payment for
purchase of the goods and for any reason purchase
order is not carried to its logical conclusion either
because of its cancellation or otherwise and material
or goods for which purchase order was placed is not
supplied by the supplier the cheque cannot be said to
have been drawn for an existing debt or liability.
4.Taking in consideration the 2nd point since there is
no enforceable debt or other liability subsisting on
the date of drawal of the cheque because of non
supplying of the goods ,thus there cannot be a
liability under sec 138 of NIA 1881.

22. The court placed reliance on the judgement in
the following cases:-
(1) M/s. Swastik Coaters Pvt. Ltd v. M/s. Deepak
Brothers and others; [1997 Cri. L.J. 1942 (AP)
(2) M/s. Balaji Seafoods Exports (India) Ltd. and
another v. Mac Industries Ltd.; [1999 (1) CTC 6]
(3) Supply House, Represented by Managing Partner
v. Ullas, Proprietor Bright Agencies and another;
[2006 Cri. L.J. 4330 (Kerala)]

23. M/S. Econ Antri Ltd vs M/S. Rom Industries
Ltd. & Anr
( 2013 (10) Scale 555)
LIMITATION FOR COMPLAINT ON CHEQUE
DISHONOUR CLARIFIED – DAY OF EVENT TO
BE EXCLUDED

24. ISSUE:-Whether in a case where a period is fixed
within which a person must act, the day on which the
cause of action arises (i.e., receipt of notice under
Section 138 (b) of the NI Act intimating the drawer of
the fact of dishonour of the cheque) should also be
counted while computing the limit of 30 days?
HELD:-
1.The Supreme Court held that for the purposes of
calculating the period of one month, the period had
to be reckoned by excluding the date on which the
cause of action arose.
2.The court said that where a particular time was to
be computed from the happening of a certain event,
the day of the event was to be excluded.

25. KIRSHNA TEXPORT &CAPITAL MARKETS
LTD vs. ILA A. AGRAWAL & ORS.
(CRIMINAL APPEAL NO 1220 OF 2009)
ISSUE:-Whether it is obligatory to issue
separate notices to the Directors in addition
to the Company, before initiating any
proceedings against them u/sec 138 NIA
1881?

26. The notice under Section 138 is required to be given to
“the drawer” of the cheque so as to give the drawer an
opportunity to make the payment and escape the
penal consequences.
No other person is contemplated by Section 138 as
being entitled to be issued such notice.
There is nothing in Section 138 which may even
remotely suggest issuance of notice to anyone other
than the drawer.

27.  Section 141 states that if the person committing
an offence under Section 138 is a Company,
every director of such Company who was in
charge of and responsible to that Company for
conduct of its business shall also be deemed to
be guilty.

28.  The reason for creating vicarious liability is plainly
that a juristic entity i.e. a Company would be run
by living persons who are in charge of its affairs
and who guide the actions of that Company and
that if such juristic entity is guilty, those who were
so responsible for its affairs and who guided
actions of such juristic entity must be held
responsible and ought to be proceeded against.
 Section 141 again does not lay down any
requirement that in such case the directors must
individually be issued separate notices under
Section 138.

29. Somnath Sarkar vs. Utpal Basu Mallick &
Anr. [2013 (12) Scale 484]
ISSUE:-Whether the court can
award compensation of amount
which exceeds twice the amount
of the dishonoured cheque u/138
NIA 1881?

30. Facts:-
1) The Appellant issued a cheque in favour of the
Respondent for a sum of Rs. 69,500/- which was
dishonoured due to insufficient funds.
2) The Appellant was directed to pay Rs. 80,000 towards the
cheque amount-
(Principal of Rs. 69,500 ,Rs. 10,500 towards compensation and
Six months imprisonment)
3) The Appellant made the payment of Rs. 80,000 and filed a
further appeal to the Calcutta High Court to set aside the
imprisonment.

31. 4) The court imposed an additional payment of Rs.
69,500/- in lieu of the six months imprisonment.
5) Thus, as against the original cheque amount of
Rs. 69,500/- the Appellant was liable to the extent
of Rs. 1,49,500/- (original amount of Rs. 80,000
and the additional amount of Rs. 69,500).
6) The Appellant challenged this additional
imposition of Rs. 69,500/- in the Supreme Court.

32. HELD:-
1) The SC held that there was nothing wrong in a compensation of Rs.
80,000.
2) However, the payment of a further sum of Rs. 69,500/-, since
it exceeded the limit of double the cheque amount (i.e., twice Rs.
69,500) ,was held to be contrary to Section 138 of the NI Act
3) The Court said that the power to award compensation does not independently
exist under the NI Act, and such fine, in any event, cannot exceed twice the value of
the cheque amount as envisaged in the Act.

33. Bibliography
1. Indian Kanoon(www.indiankanoon.org)
2. Live Law(www.livelaw.in)
3. Indian Case Laws(www.indiancaselaws.org)
4. Legally India(www.legallyindia.com)
5. Bar and Bench(www.barandbech.com)

34. THANK YOU
PRESENTED BY:-
Priyanka Agarwal
Intern 1
SKJ LEGAL