LANDMARK CASES ON SECTION-138 NEGOTIABLE INSTRUMENTS ACT 1881 (2020-2021)
SECTION 138 OF N.I ACT 1881:
Dishonour of cheque for insufficiency, etc., of funds in the account, – Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provision of this Act, be punished with imprisonment for [a term which may be extended to two years], or with fine which may extend to twice the amount of the cheque, or with both:
Provided that nothing contained in this section shall apply unless—
(a) the cheque has been presented to the bank within a period of six months (Now three months) from the date on which it is drawn or within the period of its validity, whichever is earlier;
(b) the payee or the holder in due course of the cheque, as the case may be, makes a demand for the payment of the said amount of money by giving a notice; in writing, to the drawer of the cheque, [within thirty days] of the receipt of information by him from the bank regarding the return of the cheque as unpaid; and
(c) the drawer of such cheque fails to make the payment of the said amount of money to the payee or, as the case may be, to the holder in due course of the cheque, within fifteen days of the receipt of the said notice.
- Re- Expedious Trial of Cases Under Section 138 Of N.I. Act 1881:[1]
It is a prominent fact that wherein, the accused does not plead guilty, in criminal complaints, the magistrate shall Ipso-Facto take Cognigence, record the evidence and lay down the judgement. Nevertheless, wherein, cases that may attract penalty of imprisonment for more than a year shall only be tried as summon trials and the magistrate shall on account of such information shall refer the summary trials to summon trials. Whereas, such cases have been delaying the process of delivery of justice in respective cases. With regard to the objective of Section-143 of the N.I Act 1881 emphasize on speedy disposal of complaints, but the Mens-Rea behind conversion of such cases shall be cautious enough not to defeat the objective of the said section 143 of the N.I. Act 1881.
Any complaint or suit that is criminal in nature shall be governed by the procedural code i.e., Cr.P.C. The Apex court with regard to the conversion of summary trials to summon trails and speedy disposal of cases have laid down 8 guidelines which flows as follows:
- The High-Courts shall issue practice guidelines to Trial-Courts, wherein, the Trial-Courts may be made aware, under which circumstances, the summary trails be converted to summon trials.
- Enquiry to be conducted on the ground of Territorial Jurisdiction of the court with regard to accused.
- On account of enquiry conducted under Section-202 of Cr.P.C, evidences may be entertained Prima-Facie via means of an Affidavit.
- Notwithstanding to restrictions relating to Section 219 of Cr.P.C, amendments to be made to the respective section in order to punish the guilty of the multiple or repeated offences, within a time-span of 12 months.
- The High-Courts shall issue practice guidelines in accordance with service of summons.
- The Trial courts shall possess inherent powers with respect to, review or recall the summons if issued. Nevertheless, they may have right to exercise the powers vested in them under Section- 322, only in case of lack of jurisdiction.
- Section-258 of Cr.P.C shall not be applicable to this Section henceforth; A committee shall be appointed in order to make amendments to the act.
- The said committee shall deal with any other flaws in the Act that may delay proceedings under Section-138 of N.I. Act.
- Re- Cognigence for Extension of Limitation:[2]
Amid this pandemic the Supreme court have been a torch-bearer to the Justice seekers with respect to the obstacles and difficulties faced by the litigants and the petitioners by extending the period of limitation (across the country) for filing of suits/petitions/appeals/applications of all proceedings that were governed by Law of Limitation i.e., Indian Limitation Act 1908 or any other provisions of Central or State Laws. Thus, the principle of Natural Justice remained intact.
The guidelines were:
- Limitation period shall stand excluded for a period of 365 days from 15.10.2020.
- All people shall have a limitation period of 90 days, from 15.10.2021, for filing of suits/petitions/appeals/applications in all courts.
- This shall also be made applicable Ipso-Facto on the proviso of S-138 of the Act.
- Government to make amendments with respect to containment zones and shall Regulate Movement, for the purposes of medical emergencies, Legal remedies, time-bound applications, essential goods and services, job and educational necessities.
- P. Mohanraj V. Shah Brother Ispat Pvt. Ltd.:[3]
Section-138 of the N.I Act 1881 is Prima-facie, self-explanatory Ab-Intra as it clearly denotes that the debt or liability payable to the creditor is a legally enforceable debt and hence, attracts penalties with regard to the criminal liability that used to be a civil liability that may attract imprisonment up to twice the amount that may compensate the losses, interest and costs incurred by the aggrieved party, thus it proves itself to be a hybrid provision in the eyes of law. It was observed by the Supreme court that the basic objective of this Section is not to punish the Wrong-doer but in-spite to compensate the victim for the losses occurred.
Thus, the court concluded with an observation that as under section-14 of IBC amounts to a proceeding under the moratorium period, the same context of proceeding for recovery of legally enforceable debt is mentioned under chapter XVII of N.I. Act.
- Kalamani Tex. V. P. Balasubramanian:[4]
Both the appellant and the respondent were engaged in a business arrangement for Growell International, wherein, they mutually agreed to export garments to France State. Thereto, some challenges were faced as a result of which the appellant have to pay a sum of Rs. Eleven lakhs Twenty Thousand (11,20,000/-) to the Respondent, in addition to this, the respondent mutually entered into a deed whereby, he shall compensate the initial expenditure incurred by the appellant.
A cheque was issued to repay the debt but was returned with a bank memo titled funds insufficient by the bank, post this a notice has also been issued within a time-span of 15 days. In addition to this the appellant claimed that the documents and cheque were misused by the respondent and the same were issued for a different purpose.
The Apex-court admitted that the originality and the genuineness of the documents remained intact and were not hampered merely by a denial statement. Furthermore, it was observed that the reversal of the order by High-Court, was not merely done on a different observation as of the Trial-court, that the High-Court ought to have reasons prior trifling with the order of Trial-Court.
The impugned order was upheld by the Supreme-Court, wherein, the amount has to be paid in full by the latter, nevertheless, the imprisonment of three months was invoked by the Supreme-Court.
- Pankaj Sharma V. State of U.P.:[5]
On furnishing of the request by accused the respondent issued a loan of 6,00,000 for personal loan, wherein, the respondent at the stage of returning the funds issued a negotiable instrument that was declined by the bank and a memo was issued stating Insufficient-funds. Upon confrontation of the same to the accused the accused issued another cheque that was also declined by the bank stating the reason “Alteration/Correction on Instrument”. A notice was issued to the accused by the respondent after nagging and denial to pay the sum. Session court have set free the accused as a matter od fact that the notice was issued 1 day after the 15 days, time-frame and quashed the summoning order.
The Allahabad High Court upon observation of non-Bonafide and ill Means-Rea of the accused have issued the summons to the accused and set-aside the impugned order of the Session-Court by powers vested under a judge to condone delay under N.I. Act.
- Ravi Dixit V. State of U.P.:[6]
Two cheques were issued on part of the accused wherein, both of the cheques were dishonoured by bank, stating the reason “Funds-Insufficient”. The petitioner has issued a legal notice upon denial of the accused for returning of funds. The Mens-Rea of the accused was made clear so the Petitioner filed a case in order to claim his funds from the accused. The issue before the court was that whether or not to allow the petition before the time-frame as prescribed by the Negotiable Instruments Act 1881 under it’s Section-138. Would the same defeat the essential of the law? The court observed that if the motive of the latter, was made clear to the other party the time frame shall only cause delay in retuning of payment. The hon’ble High-Court stated that the complainant may not wait if the objective of the latter was made clear, according to the N.I. Act.
- Sunita Palta V. Kit Marketing (P) Ltd.:[7]
The complainant and the accused, were regular with their business transactions, four cheques issued on the part of accused, wherein, all the cheques were dishonoured for the reason “Funds-Insufficient”. The complainant issued a legal-notice in compliance with the N.I. Act, but haven’t received any reply, thus he filed a complaint. The counsel for the accused, prayed that the accused were wrongly accused as they were neither the Managing Directors nor the signatories of the said cheques. Hence have no liability to pay the legally enforceable debt to the Petitioner. Nevertheless, according to Registrar of Companies those people were stated as the Directors of the said company. The summons was issued by the Session Court.
The hon’ble High court have observed that the petitioners may have been vicariously liable but the petitioners were responsible for the day-to-day activities, wherein, they were not responsible for the financials, thus can be termed as Non-Executive Directors. These evidences according to the Hon’ble High Court were not enough to convict the latter and thus, issued notification to quash the summoning order issued by the Sessions-Court.
- Subanamma Ninan V. George Veeran:[8]
Issue before the Hon’ble Court was to determine the starting period of the commencement of 15-day time-period. The court have observed that the Negotiable Instrument, if, to be challenged under Section 138 of the said Act shall be taken into consideration from the date of issue of cheque not the date mentioned on the negotiable instrument. The court have also notified that in certain cases the dates are posted for later on the face of Negotiable Instruments, so that the same shall be presented on the date as expected by the Drawer, hence the dates posted on the face of cheques are thus immaterial. The time period of the cheque according to N.I Act shall commence from the date of Issuance.
- Rakesh Kumar V. Jasbir Singh:[9]
The Petitioner issued a cheque to the Respondent which when issued got dishonoured, when presented for clearance for the reason of “Funds-Insufficient” that was stated on bank-memo. Nevertheless, a notice was issued to the Petitioner, that went unanswered. Hence the complaint was filed. The accused was convicted and the case was dismissed. An appeal was made in order to reduce the sentence but the same was denied. Therefore, the Petitioner filed a Revision-Petition which was allowed.
Issue before the court was whether the petitioner is entitled to some relief and if yes then what role does, sympathetic consideration play in the matter of such circumstances?
The Hon’ble court have observed that intensity of the punishment depends on the nature of the crime committed. The issue of N.I and returned dishonoured is a socio-economic offence and shall be handled with due strictness, leaving no scope for repetition in mere future, in addition to this the court added that such provisions shall be dealt with accordance to the faith of inculcation of Greater-Faith in the society. With this observation the court dismissed the petition and upholding the decision that sentenced the Revision-Petitioner for 2 years.
- M. Jaishankar V. Sree Gokulam Chits & Financial Corp.[10]:
Jaishankar and Nagalakshmi were a couple. Wherein, the husband i.e., Jaishankar, joined a chit fund wherein, he became a subscriber to. On default of the payment relating to chit fund, the corporation asked Jaishankar to repay the debt or he shall face legal actions for the same. Nagalakshmi, the wife herein, along with Jaishankar paid a visit for the settlement of the issue and thereafter, Nagalakshmi issued a cheque on her personal bank account that got dishonoured in the bank stating the reason of “Payment Stopped by Drawer”. Hence, the N.I. proceedings were initiated when the legal notice went unanswered.
The court have observed that the person issuing the cheque with respect to discharge the liability of another person can be held liable under the said proceedings of N.I. Act under section 138 wherein, the proceedings as to the accused Jaishankar cannot be initiated as the proceedings under section 138 cannot be initiated on the person who has not issued the cheque.
[1] 2021 SCC ONLINE SC 325
[2] 2021 SCC ONLINE SC 193
[3] 2021 SCC ONLINE SC 152
[4] 2021 SCC ONLINE SC 75
[5] 2020 SCC ONLINE ALL 1339
[6] 2020 SCC ONLINE ALL 1056
[7] CRL. MC NO. 1410 OF 2018
[8] 2020 SCC ONLINE KER 4151
[9] 2020 SCC ONLINE P&H 1197
[10] 2020 SCC ONLINE MAD 5550
DUCTUS EDGE 