Section 138[1] of Negotiable Instruments Act reads that the following are the components of the offence punishable under Section 138 of Negotiable Instrument Act: –
(1) drawing of the cheque by a person on an account maintained by him with a Banker, for payment to another person from out of that account for discharge in whole/part any debt or liability,
(2) presentation of the cheque by the payee or the holder in due course to the Bank,
(3) returning the cheque unpaid by the drawee Bank for want of sufficient funds to the credit of the drawer or any arrangement with the Banker to pay the sum covered by the cheque,
(4) giving notice in writing to the drawer of the cheque within 15 days of the receipt of information by the payee from the Bank regarding the return of the cheque as unpaid demanding payment of the cheque amount,
(5) failure of the drawer to make payment to the payee or the holder in due course of the cheque, of the amount covered by the cheque within 15 days of the receipt of the notice.
- WHAT IS AMOUNT OF MONEY AS PER SECTION 138?
Question which comes up for consideration is as to what the expression “amount of money means in a case” where the admitted liability of the drawer of the cheque gets reduced, on account of the part payment made by him, after issuing but before the presentation of cheque in question. No doubt, the expression “amount of money would mean the” amount of the cheque alone in case the amount payable by the drawer, on the date of presentation of the cheque, is more than the amount of the cheque.
But, can it be said the expression “amount of money would always mean the” amount of the cheque, even if the actual liability of the drawer of the cheque has got reduced on account of some payment made by him towards the discharge of the debt or liability in consideration of which the cheque in question was issued?
If the expression “amount of money” would necessarily mean the amount of cheque in every case, the drawer of the cheque would be required to make arrangement for more than the admitted amount payable by him to the payee of the cheque. In case he is not able to make arrangement for the whole of the amount of the cheque, he would be guilty of the offence punishable under Section 138 of Negotiable Instruments Act. this could not have been the intention of the legislature to make a person liable to punishment even if he has made arrangements necessary for payment of the amount which is actually payable by him. If the drawer of the cheque is made to pay more than the amount actually payable by him, the inevitable result would be that he will have to chase the payee of the cheque to recover the excess amount paid by him.
Therefore, even if the admitted liability of the drawer of the cheque has got reduced, on account of certain payments made after issue of the cheque, the payee would nevertheless be entitled to present the cheque for the whole of the amount, to the Banker of the drawer, for encashment and in case such a cheque is dishonoured for want of funds, he will be guilty of offence punishable under Section 138 of Negotiable Instrument Act.
The drawer of a cheque may make payment of a part of the amount of the cheque only with a view to circumvent and get out of his liability under Section 138 of Negotiable Instrument Act. But this can easily be avoided by payee of the cheque, either by taking the cheque of the reduced amount from the drawer or by making an endorsement on the cheque acknowledging the part payment received by him and then presenting the cheque for encashment of only the balance amount due and payable to him. In fact, Section 56 of Negotiable Instrument Act specifically provides for an endorsement on a Negotiable Instrument, in case of part-payment and the instrument can thereafter be negotiated for the balance amount. It would, therefore, be open to the payee of the cheque to present the cheque for payment of only that much amount which is due to him after giving credit for the part-payment made after issuance of cheque.
The Division Bench of Kerala High Court in Joseph Sartho v. Gopinathan Nair[2] noted by the Supreme Court in Rahul Builders v. Arihant Fertilizers & Chemicals and Anr[3], that the Negotiable Instruments Act envisages application of the penal provisions which needs to be construed strictly. Therefore, even if two views in the matter are possible, the Court should lean in favour of the view which is beneficial to the accused. This is more so, when such a view will also advance the legislative intent, behind enactment of this criminal liability. Whether a substantial amount was paid or a meager amount was paid. A notice of demand which requires the drawer of the cheque to make payment of the whole of the cheque amount, despite receiving some amount against that very cheque, much before issue of notice, cannot be said to be a legal and valid notice envisaged in Section 138(b) of Negotiable Instrument Act. The expression “amount of money” used in Section 138(b) of Negotiable Instrument Act, in a case of this nature would mean the amount actually payable by the drawer of the cheque to the payee of the cheque. Of course, if the payee of the cheque makes some demands on account of interest, compensation, incidental expense etc., that would not invalidate the notice so long as the principal amount demanded by the payee of the cheque is correct and is clearly identified in the notice.
- WHEN THE PRINCIPAL AMOUNT IS CLAIMED MORE THAN THE AMOUNT OWED?
When the principal amount claimed in the notice of demand is more than the principal amount actually payable to the payee of the cheque and the notice also does not indicate the basis for demanding the excess amount, such a notice cannot be said to be a legal and valid notice envisaged in Section 138(b) of Negotiable Instrument Act. In such a case, it is not open to the complainant to take the plea that the drawer of the cheque could have escaped the liability by paying the actual amount due from him to the payee of the cheque. In order to make the notice legal and valid, it must necessarily specify the principal amount payable to the payee of the cheque and the principal amount demanded from the drawer of the cheque should not be more than the actual amount payable by him though addition of some other demands in the notice by itself would not render such a notice illegal or invalid. M/s. Alliance Infrastructure v. Vinay Mittal, Cri. M.C. No. 2224 of 2009, decided on 18th January, 2018)
- WHATS THE OBJECT OF LEGAL DEMAND NOTICE U/S 138 OF NI ACT?
Court in Central Bank of India and Ann v. Saxons Farms and Ors.,[4] the object of the notice is to give a chance to the drawer of the cheque to rectify his omission. The demand in the notice has to be in relation to ‘said amount of money’ as described in the provision. The expression ‘payment of any amount of money’ as appearing in the main portion of Section 138 of the Act goes to show it needs to be established that the cheque was drawn for the purpose of discharging in whole or in part of any debt or any liability, even though the notice as contemplated may involve demands for compensation, costs, interest etc. The drawer of the cheque stands absolved from his liability under Section 138 of the Act if he makes the payment of the amount covered by the cheque of which he was the drawer within 15 days from the date of receipt of notice or before the complaint is filed.
[1] Dishonour of cheque for insufficiency, etc., of funds in the accounts 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 provisions of this Act, be punished with imprisonment for [a term which may extend 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 from the date on which it is drawn or within the period of its validity, whichever is earlier.
(b) The payee or the holder induce 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
[2] 2009 (2) Crimes 463 (Kerala)
[3] (2008) 2 SCC 321
[4] 1999 (8) SCC 221
DUCTUS EDGE 