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INTRODUCTION

The Negotiable Instruments Act, 1881 provides for three kinds of instruments, namely,
promissory notes, bills-of-exchange and cheques; it excludes from its periphery instruments
in oriental language, such as, Hundies. With the advent of technology, two other modes of
payments came to be recognised, that is, NEFT (National Electronic Fund Transfer) and
RTGS (Real Time Gross Settlement).

The law in regards to these electronic means of transfers, that is, NEFT and RTGS, has been
provided for in the Payment & Settlement Systems Act, 2007. Section 25 of the Payment &
Settlement Systems Act, 2007, deals with cases relating to dishonour of electronic transfers.
Section 25(5) of the Payment & Settlement Systems Act, 2007 provides that, the provisions
of Chapter XVII of the Negotiable Instruments Act, 1881 shall apply to cases relating to
dishonour of electronic funds transfer.

The word “negotiable” means transferable from one person to another in return for
consideration; however, the word “instrument” means, a written document by virtue of which
a right is created in favour of some person. Thus, every document which entitles a person to a
sum of money and which is transferable (like cash) by delivery, is permitted to be called a
“negotiable instrument”. Thus, negotiable instrument means, a document transferable by
delivery. The term “negotiable instrument”, as such, has not been defined in the Negotiable
Instruments Act, 1881, for at the most, Section 13 of the Negotiable Instruments Act, 1881
states that, a negotiable instrument means a promissory note, bill of exchange or cheque
payable either to order or to bearer.

The principal difference between a negotiable instrument and other documents (or a chattel)
is that, in case of a negotiable instrument, the transferee, in good-faith and for consideration
attains a good title even though the title of the transferor may be suffering from a defect;
however, in case of other documents transferee gets a similar title (or to say, no better title)
than the transferor.
The Negotiable Instruments Act, 1881 came into force on 1st March, 1881, and it extends to
the whole of India.

The Negotiable Instruments (Amendment) Act, 2018 (the "Amendment") was recently
passed by parliament and came into effect from September 1, 2018. It introduces substantial
changes to the Negotiable Instruments Act, 1881 (the "Act"), which may have a significant
impact on commerce and the ability of parties to transact through negotiable instruments.

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HISTORY OF NEGOTIABLE INSTRUMENTS ACT 1881

The term ‘Negotiable’ is one of classifications and does not of necessity imply anything more
than that the paper possesses the negotiable quality. Generally speaking, it applies to any
written statement given as security, usually for the payment of money, which may be
transferred by endorsement or delivery, vesting in the party to whom it is transferred or
delivered a legal title on which he can support a suit in his name. The term signifies that the
note or paper writing to which it is applied possesses the requisites of negotiability. A
negotiable instrument is, therefore, which when transferred by delivery or by endorsement
and delivery, passes to the transferee a good title to payment according to its tenor and
irrespective of the title of the transferor, provided he is bona fide holder for value without
notice of any defect attaching to the instrument or in the title of the transferor.

The law relating to negotiable instruments is not the law of one country or of one nation, it is
the law of the commercial world in general, for, it consists of “certain principles of equity and
usages of trade which general convenience and common sense of justice had established to
regulate the dealing of merchants and mariners in all commercial countries of the civilised
world.” Even now the laws of several countries in Europe are, at least so far as general
principles are concerned, similar in many respects. Of course, on questions of detail, different
countries have solved the various problems in different ways, but the essentials are the same,
and this similarity of law is a prerequisite for the vast international transactions that are
carried on among the different countries.

In India, prior to the enforcement of the present Negotiable Instrument Act, English Acts and
Statutes dealing with this subject were in force. The frequent use of negotiable instruments in
personal as well as business transaction in India was also not a totally new practice during the
British regime. The reason was that since olden days, the use of such instruments like
Hundies, was prevalent in India. In Mughal period too, there was same position. When
British regime established in India three fold system in this regard was enforced and Muslims
were governed by their respective personal law.

The Europeans were governed for that purpose by English laws, whenever there was any
conflict between personal laws, i.e. Hindu Law or Muslim law with English Bill of Exchange
and there was no proof of any specific 28 usage, the English law had to prevail. Thereafter,
various English Acts and statutes were enforced in India to deal with the matters relating to
negotiable instruments. Those acts and Statues were enforced in India to deal with the matters
relating to negotiable instruments. Those Acts and statues were English Bill Of Exchange
Act.

With the increasing popularity of promissory notes, disputes regarding promissory notes are
also increasing day-by-day. Under those circumstances, then the British Colonial Rulers
introduced a separate Act for promissory notes. The said act is called Negotiable Instruments
Act. This Act came into force for the first time in India in the year 1881. The British Rulers
considered cheques and Bills of Exchange also as Negotiable instruments along with
promissory notes. In ancient India, “Hundies” were most popular. Hundi is also a kind of
negotiable instrument. Under some circumstances, Hundi is also used as bills of exchange.
Negotiable Instruments Act does not recognize “Hundi” as a negotiable instrument. There is
no specific law in ancient India regarding negotiable instruments. Nothing was mentioned in
ancient law books of Hindus and Muslims about negotiable instruments.

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Whenever a dispute arose regarding a negotiable instrument like hundi, Courts used to apply
conventions and customary law prevailing among the merchant community of those
respective communities. In those circumstances, the British colonial government enacted
Negotiable instrument Act in 1881. From the beginning, promissory notes are common even
among middle class and ordinary people. Middle class people use to borrow money from
their friends, relatives or money lenders by executing a promissory note, to meet their
immediate or urgent domestic needs or requirements. With the advancement of chit fund and
Banking transactions, promissory notes are becoming more popular. Chit Fund companies,
commercial Banks and other various business establishments are taking promissory notes
from their customers, in some cases as security and in some cases as collateral security while
lending money or advancing loans.

History of Promissory Note

The basic feature of a promissory note is that it should be in writing and also signed or thumb
impression by the maker. The amount mentioned in the promissory note should be paid in the
form of money only, it should be kept in mind that even if promissory note was executed in
connection with the sale or purchase of any article or property, the repayment should not be
in the form of goods or property. The amount payable by the executant of the promissory
note should be specifically and clearly mentioned in the promissory note. It will be
mentioned in the promissory note that the amount mentioned there in will be paid along with
certain rate of interest. Another important feature for a promissory note is that there cannot be
any condition or conditions regarding the payment of amount mentioned in the 9 promissory
note, in most of promissory notes, these words will be absent. It has to be understood that
‘Unconditional undertaking to pay’ means payable on demand. A combined reading of
sections 4, 19 and 21 makes it clear that a promissory note where no time limit is mentioned
for the payment of amount mentioned there in, and a promissory note payable at right and on
presentment will be considered as promissory note.

History of Bills of Exchange

Sir John Comyn’s digest in the early part of the 18th Century defines Bill of Exchange, “A
bill of exchange is when a man takes money in one country or city upon exchange, and draws
a bill whereby he directs another person in another country or city to pay so much to A, or
order, for value received of B, and subscribes it. Comyns’ definition illustrates the original
theory of a bill of exchange. A bill in its origin was a device to avoid the transmission of cash
from place to place to settle trade debts. Now a bill of exchange is a substitute for money. It
is immaterial whether it is payable in the place where it is drawn or not .It is immaterial
whether it is stated to be given for value received or not , for the law itself raises a
presumption that it was given for value . But though bills are a substitute for cash payment,
and though they constitute the commercial currency of the country, they must not be
confounded with money. A bill of exchange must be an unconditional order to pay. If an
instrument is made payable on a contingency, or out of a particular fund, so that its payment
is dependent on the continued existence of that fund, it is invalid as a bill, though it may, of
course avail as an agreement or equitable assignment. In Scotland it has long been the law
that a bill may operate as an assignment of funds, in the hands of the drawee and section 53
of the act preserves this rule Bill of exchange must be stamped, but the act does not regulate
the stamp. It merely saves the operation of the stamp law’s, which necessarily vary from time
to time according to the fluctuating needs and policy of the exchequer.

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History of Cheque

It is very difficult to trace out the origin of cheque. There is no definite view regarding the
original of the cheque. The word Cheque is derived from the French ‘Eches’ meaning Chess.
The Chequers placed at the doors of public houses were intended to represent Chess-boards,
and originally denoted that the game of Chess was played in those houses. Similar tables
were employed in reckoning money, and hence came the expression ‘to check an account’;
and the Government office where the public accounts were kept, was called the ‘Exchequer’.
There is also another explanation.

It is said that the word `Cheque’ arose from the consecutive numbers which were placed upon
the official forms to act as a check or means of verification. In India - Although the high
mountains ranges have separated India from the rest of Asia, yet this separation did not
prevent intercourse with the countries of world. The well-developed financial system can be
traced from Kautilya’s (Chanakya) Arthsastra. It has been described in it, “All undertaking
depend upon finance. Hence, foremost attention shall be paid to the treasury.”

Indigenous banking is an age old tradition in India. Although evidence regarding the
existence of money lending operations in India is found in the literature of the Vedic times,
i.e. 2000 to 1400 B.C. no information is available regarding their pursuit, as a profession by a
section of the community, till 5000 B.C. From this time onwards, India possessed a system of
banking, which admirably fulfilled her needs and proved very beneficial to her, although its
methods were different from those of modern Western Banking.

Usury was practised but was held in contempt. From the laws of Manu, it appears that money
lending and allied problems had assumed considerable importance, and that deposit banking
in some form had come into existence by the second or third century of the Christian era.
Kautilya’s Arthsastra laid down 15 to 60 per cent as the maximum legal rates of interest per
annum on secured and unsecured loans respectively, but permitted a maximum of 240 per
cent if the risk was especially heavy.

Hundi

There is no legal definition either statutory or otherwise of a hundi, though such documents
are in common use. Hundis are of several kinds the chief being Shah Jogi Hundi Jokhmi
Hundi, Namjag Hundi. In fact, the word ‘hundi’, a generic term used to denote instruments of
exchange in vernacular, is derived from the Sanskrit root ‘hund’ meaning ‘to collect’ and
well express the purpose to which such instruments were utilised in their origin.

Hundis or indigenous bills of exchange came into use from the 12th century, and it appears
from the writing of a few Muslim historians, European travellers, State records and the Ain-i-
Akbari that both under the early Muslim and Mogul rulers in India indigenous bankers played
a prominent part in lending money, financing internal and foreign trade with cash or bills, and
giving financial assistance to rulers during periods of stress.

No exact information is available regarding the rates of interest charged by them, but it
appears from the evidence that is available, that they were higher than those prescribed in
Kautilya’s Arthashastra. In India, there is reason to believe that instrument of exchange were
in use from early times and we find that papers representing money were introduced into the
country by one of the Muhammadan sovereigns of Delhi in the early part of the fourteenth
century, the idea having been borrowed from China; and it is the accepted theory of the

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western savants, that in China a complete system of paper currency and banking had been
developed as early as the tenth century and it is not improbable that such an idea filtered into
India sometime later.

During the Mughal rule the issue of various of metallic money in different parts of the
country gave the indigenous bankers great opportunities for developing the very profitable
business of money-changing and the most important among them were appointed mint
officers, revenue collectors, bankers and money-changers to Government in various parts of
the Empire. Many of them wielded great influence in the country, and those among them who
came to be known as Jagat Seths (world bankers) in the 17th and 18th centuries possessed as
great a power as the private bankers of any Western country.

The indigenous bankers, however, could not develop to any extent the system of obtaining
deposits regularly from the public and paying interest on them and those who made savings
either horded them, or lent them to friend and neighbours. The reason seems to be that many
of them combined trade with banking business; this combination reduced the stability of their
banking business, and produced an unfavourable reaction upon banking development in
India.

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INTRODUCTION OF NEGOTIABLE INSTRUMENTS

In the world of business and finance, negotiable instruments are a very important tool. They
provide the parties with an ease of doing business. And they can also be a source of finance
when in need of funds. Instruments are nothing but documents which have monetary value
and are interchangeable. Hence, the two main characteristics of Negotiable Instruments are
financial worth and transferability.

Also, the negotiable instrument is actually a written document. This document specifies
payment to a specific person or the bearer of the instrument at a specific date. So we can
define a bill of exchange as “a document signifying an unconditional promise signed by the
person giving promise, requiring the person to whom it is addressed to pay on demand, or at a
fixed date or time, a certain sum to or to the order of a specified person, or to bearer.”

Different features of negotiable instruments

 Easily Transferable:

A negotiable instrument is easily and freely transferable. There are no formalities or


much paperwork involved in such a transfer. The ownership of an instrument can
transfer simply by delivery or by a valid endorsement.

 Must be Written:

All negotiable instruments must be in writing. This includes handwritten notes,


printed, engraved, typed, etc.

 Time of Payment must be Certain:

If the order is to pay when convenient then such an order is not a negotiable
instrument. Here the time period has to be certain even if it is not a specific date. For
example, it is acceptable if the time of payment is linked with the death of a specific
individual. As death is a certain event.

 Payee also must be certain:

The person to whom the payment is to be made must be a specific person or persons.
Also, there can be more than one payee for a negotiable instrument. And “person”
includes artificial persons as well, like body corporate, trade unions, chairman,
secretary etc.

TYPES OF NEGOTIABLE INSTRUMENTS

 Promissory Note:

In this case, the debtor is the one who makes the instrument. And he promises
unconditionally to the creditor (or the Bearer of the document) a certain sum of
money on a specific date.

 Bills of Exchange:

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This is an order from the creditor to the debtor. This instrument instructs the drawer
(debtor) to pay the payee a certain amount of money. The bill will be made by the
drawer (creditor)

 Cheque:

This is just another form of a bill of exchange. Here the drawer is a bank. And such a
cheque is only payable on demand. It is basically the depositor instructing the bank to
pay a certain amount of money to the payee or the bearer of the cheque.

 Others:

There are other instruments such as government promissory notes, railway receipts,
delivery orders, etc. These can be negotiable instruments by custom or practice of the
trade.

Chittis

Documents known as “barati chittis “and “Samachari chittis “which are in use among Indian
merchants for carrying on transactions in which money passes from hand to hand , are liable
to stamp duty in the same manner as Hundis as bill of exchange.

Drafts and Demand drafts.

A written order by the first party, called the drawer, instructing a second party, called the
drawee (such as a bank), to pay a third party, called the payee An order to pay a sum certain
in money, signed by a drawer, payable on demand or at a definite time, and to order or
bearer: An unconditional order drawn by drawer or drawee to the order of the payee, same as
a bill of exchange. A demand draft by one branch of bank on another branch of the same
bank in the form of a bill of exchange payable on demand to a third party is a bill of exchange
within the meaning of section 2 (2) of the Indian Stamps Act, and is exempt from stamp duty
by virtue of Finance Act 5th of 1927 24 The name of the person to whom the amount
mentioned in the promissory note is payable should be specifically and clearly mentioned in
the promissory note. Regarding promissory note, promise to pay the amount mentioned in the
promissory note is most important when compared with the mentioning of reasons or
circumstances for executing a promissory note. There is no specific performa is given in the
Negotiable Instruments Act or in any other Act. A promissory note will be written in any
form basing upon the circumstances under which it was written. But, a promissory note
should contain all the essential features in corporated in section 4 of the Negotiable
Instruments Act.

ADVANTAGE OF NEGOTIABLE INSTRUMENTS

 One of the biggest advantages of bills of exchange is that the consideration between
the debtor and the creditor is presumed. So we will assume that the purchaser is in
debt of the seller, the seller need not prove this fact. Since the bill has been accepted
by the debtor the court will assume that such debt legitimately exists.

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 The creditor does not have to wait for the maturity period to get the money. He can
immediately opt for bill discounting. Or he can endorse the bill to a creditor of his. So
his money does not get locked in.
 Accommodation bills enable the businessmen to obtain funds at a low rate of interest
to meet any temporary financial shortfalls that may arise from time in business.

DISADVANTAGE OF NEGOTIABLE INSTRUMENTS

 If someone finds the promissory note and forges the signature of the lender, and
present fraudulent identification papers, he can show himself as if he obtained the
instrument properly and has the right to sell the instrument to another and in this
regard defraud the true lender.

DISHONOUR OF A NEGOTIABLE INSTRUMENT


When a negotiable instrument is dishonoured, the holder must give a notice of dishonour to
all the previous parties in order to make them liable. A negotiable instrument can be
dishonoured either by nonacceptance or by non-payment. A cheque and a promissory note
can only be dishonoured by non-payment but a bill of exchange can be dishohoured either
by non-acceptance or by non-payment.

Section 91: Dishonour by non-acceptance


A bill of exchange is said to be dishonoured by non-acceptance when the drawee, or one of
several drawees not being partners, makes default in acceptance upon being duly required to
accept the bill, or where presentment is excused and the bill is not accepted. Where the
drawee is incompetent to contract, or the acceptance is qualified the bill may be treated as
dishonoured.

Section 92: Dishonour by non-payment


A promissory note, bill of exchange or cheque is said to be dishonoured by non-payment
when the maker of the note, acceptor of the bill or drawee of the cheque makes default in
payment upon being duly required to pay the same.

Section 138: Dishonour of cheque for insufficiency, etc., of funds in the account

138 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 provisions 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 from the date on
which it is drawn or within the period of its validity, whichever is earlier;

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(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, 20 [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.

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OFFENCES UNDER NEGOTIABLE INSTRUMENTS ACT


A legal fiction has been created by which, a civil wrong, viz., cheque bouncing (unpaid
cheque) has been made a criminal offence, by an amendment, made in 1988 in the Negotiable
Instruments Act 1881. Section 138 of the said Act mandates severe punishment of
imprisonment up to two years or fine of double the amount of cheque amount or both., this is
a penalty payable by the defaulter in addition to the debt payable. However, the law provides
adequate protection to honest persons who inadvertently or negligently issued cheques
without ensuring sufficient credit balance in his/her bank account. On the other hand, an
unscrupulous person, who does not consider dishonour of cheque, is a dishonour to his
credibility.

INTRODUCTION
Negotiable Instruments Act 1881 (hereinafter mentioned as N.I. Act) was amended in 1988,
and a new chapter XVII was included with new sections 138 to 142. The object and purpose
of bringing new provisions in the Act was to make the persons dealing in commercial
transactions work with a sense of responsibility and for that reason, under the amended
provisions of law, a default on their part, would make them face criminal charges. The object
and intention of the new provisions, in particular sections 138 to 142 of the N.I. Act, cannot be
ignored. Proper and smooth functioning of all business transactions, particularly, of cheques as
instruments, primarily depends upon the integrity and honesty of the parties.

Indian parliament has enacted the aforesaid provisions in order to restore the credibility of
cheques as a trustworthy substitute for cash payment. The remedy available in civil courts is a
long drawn process and an unscrupulous and litigant drawer would deliberately manipulate
various pleas to defeat/delay the genuine claims of the creditor/lender.

The new provisions viz. section 138 to 142 of N.I. Act that make a civil wrong deemed to be a
criminal offence, “sans mensrea” has been challenged as unconstitutional being violation of
Articles 14, 19, 20 and 21 of the Constitution. This was rejected by the Hon’ble Delhi Court
saying “ only cheques have been chosen under the purview of section 138. This law has been
necessitated because of the malpractices prevalent in our society.

It may not be stated that the liberty of a person was being curtailed by an arbitrary procedure
or that such a procedure was violative of Article 21 of the constitution.” Rajendra Steel Ltd.,
vs. Union of India (2000) 100 Comp. Cases 274 Delhi.The law also provides compounding of
offence u/s 147 of the N.I. Act, as a further concession to honest drawers.

After the amendment made in 1988, with effect from 01.04.1989, dishonour of cheque shall,
subject to complying with the provisions of the act, be deemed to be a criminal offence u/s 138
of N.I. Act - which was only a civil wrong previously. When a cheque presented for payment
is returned unpaid by the drawee bank for either of the following two specific reasons viz.,
(i) the amount of money standing to the credit of drawer’s a/c is insufficient to
honour the cheque or
(ii) the cheque amount exceeds the amount arranged by the drawer to be paid from
that account, by any arrangement with the drawee bank, like overdraft, the drawer
shall be deemed to have committed an offence punishable with imprisonment

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which may extend to two years or with fine which may extend to twice the
amount of the cheque or with both.

WHEN CAUSE OF ACTION ARISES TO FILE CRIMINAL COMPLAINT U/S


142 OF N.I. ACT
Law gives adequate safeguards to honest people who inadvertently or negligently issued
cheques, without verifying the funds available in his or his company’s bank account. Before
initiating criminal prosecution u/s 142 of the N.I. Act, law mandates the complainant (i) to
make a demand by giving a notice in writing to the drawer of the cheque to pay the cheque
amount (ii) such notice shall be given within thirty (30) days of the receipt of information
from the drawee bank- sec. 138 proviso (b). (iii) If, even after receiving the notice, the drawer
fails to pay the cheque amount within fifteen (15) days from receipt of such notice, cause of
action arises to set in motion of criminal proceedings before the competent court - proviso (c)
to section 138 N.I. Act.

WHO CAN FILE CRIMINAL COMPLAINT U/S 142 OF N.I. ACT


Sec.142 of the N.I. Act reads: Cognizance of offences. – Notwithstanding anything contained
in the Code of Criminal Procedure, 1973 (2 of 1974), -

(a) No court shall take cognizance of any offence punishable under section 138 except upon a
complaint, in writing, made by the payee or, as the case may

be, the holder in due course of the cheque;

(b) Such complaint is made within one month of the date on which the cause of action arises
under clause (c) of the proviso to section 138:

[Provided that the cognizance of a complaint may be taken by the Court after the prescribed
period, if the complainant satisfies the Court that he had sufficient

cause for not making a complaint within such period;]

The following conditions shall be fulfilled for taking cognizance of the complaint:

(i) the complaint must be made in writing clearly mentioning the offence committed u/s 138
and name of the person responsible for the offence. Mere bald allegation in the complaint is
not sufficient.

(ii) the complaint is duly signed and verified only by the payee of the cheque or the holder in
due course.,

(iii) the allegation made in the complaint shall make out a prima facie case warranting action
u/s 142.,

(iv) the complaint is made within one month of the date on which cause of action accrued i.e
on the expiry of fifteen days of receipt of notice, provided under proviso (c) to section 138.,

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(v) the complaint is made in a court not inferior that of a Metropolitan Magistrate or a
Judicial Magistrate of the first class.,

Filing of criminal complaint within the time stipulated in sec. 142 is very essential. When the
grace period given in proviso (c) to sec. 138 expired on 13.03.2017,

the complaint should be filed within a month i.e., on or before 12.04.2017.

WHETHER A POWER OF ATTORNEY OF THE PAYEE/HOLDER IN DUE


COURSE, CAN FILE COMPLIANT U/S 142 OF N.I. ACT?

Law requires that a complaint for offence committed u/s 138 should be filed only by the
payee or holder in due course. Where circumstances warrant a complaint can be filed u/s 142
before the competent Magistrate court by the power of attorney of the complainant,
provided.,

(i) “Filing of complaint petition under section 138 of the N.I. Act through power of attorney,
holding proper authority, is perfectly legal and competent.,

(ii) The power of attorney holder can depose and verify on oath before the court in order to
prove the contents of the complaint provided, the power

of attorney holder must have witnessed the transaction as an agent of the payee/ holder in due
course or possesses knowledge regarding the said transaction.

(iii) It is required by the complainant to make specific assertion as to the knowledge of the
power of attorney holder in the said transaction explicitly in the complaint. If the power of
attorney holder has no knowledge of the transaction, he cannot depose or examined as a
witness in the case – Janaki Vasudeo Bhojwanivs Industrial Bank Ltd AIR 2005 SC 439.

(iv) In the light of section 145 of the N.I. Act it is open to the Magistrate to rely upon the
verification in the form of affidavit filed by the complainant in support of the complaint
under section 138 of the N.I Act and the Magistrate is neither mandatorily obliged to call
upon the complainant to remain present before the court, nor to examine the complainant or
his witness upon oath for taking the decision whether or not to issue process on the complaint
under section 138 of the N.I. Act.

(v) The functions under the general power of attorney cannot be delegated to another person
without specific clause permitting the same in the power of attorney. Nevertheless, the
general power of attorney itself may be cancelled and be given to another.”
A.C.Narayananv.State of Maharastra SCC pp.808-809, para 33 cited in (2015)12 SCC 203
para 15 page 313.

(vi) The power of attorney cannot step into shoes of the complainant and depose on those fact
which are not in his personal knowledge.

(vii) The complaint made u/s 142 must be signed and verified by the complainant – not by the
power of attorney., complaint signed and verified by the power of attorney cannot be
regarded as valid and complete - Anirudhan v. Philip Jacob 2006 Crl. L.J. 3866 Ker.

(viii) The power of attorney cannot file a complaint in his own name as if he was the
complainant, but he can initiate criminal proceedings on behalf of the principal.

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“Keeping in mind various situations like inability as a result of sickness, old age or death or
staying abroad of the payee or holder in due course to appear and depose before the court in
order to prove the complaint, it is permissible for the power- of - attorney holder or for the
legal representative(s) to file a complaint and/or continue with the pending criminal
complaint for and on behalf of payee or holder in due course. However, it is expected that
such power-of-attorney holder or legal representative(s) should have knowledge about the
transaction in question so as to able to bring on record the truth of the grievance/offence,
otherwise, no criminal justice could be achieved in case payee or holder in due course, is
unable to sign, appear or depose as complainant due to above quoted reasons.

Keeping these aspects in mind, this Court had taken the view that if complaint is filed for and
on behalf of payee or holder in due course, that is good enough compliance with Section 142
of the N.I Act.” – A.C.Narayanan V. State of Maharastra (2015) 12 SCC Page 211 Para 26.

WHETHER LEGAL HEIR OF PAYEE/HOLDER IN DUE COURSE CAN FILE THE


COMPLAINT U/S 142 OF N.I. ACT?

If, during the pendency of the proceedings, the complainant died, his/her legal heirs can
continue the prosecution with leave of court. When the payee/holder in due course is alive
his/her legal heir can file the complaint only if the legal heir is authorised with a power of
attorney. But if the drawer of the cheque is dead then the criminal proceedings get abated,
drawer’s legal representative cannot be proceeded against u/s 142 of N.I. Act. But the payee
is not deprived of civil remedy against the legal heirs of the drawer died intestate.

WHETHER A COMPANY CAN FILE A COMPLAINT U/S 142 OF N.I. ACT.

A complaint for offence committed u/s 138 of N.I. Act can be filed only by the payee or
holder in due course. If the payee is a company the complaint shall be filed in the name of the
company duly verified and signed by the authorised person. A company is a legal person but
not a living person. It can be represented by any person, a director, or employee, or manager
provided he/she is duly authorised by the Board by proper resolution or by a power of
attorney. The only condition for filing the complaint u/s 142 N.I. Act is that the complaint
must be in the name of and by the payee or the holder in due course and there are prima facie
material for maintaining the complaint. When this condition is satisfied the Magistrate cannot
reject the complaint.

A complaint u/s 142 of N.I. Act must be filed only by a living person who is capable of
making a physical presence in the Court. When the complaint u/s 142 is made in the name of
a company it must necessarily be represented by a natural person. (Associated Cement Co.
Ltd., v. Keshavanand (1998) 1 SCC 687) Sec. 200 Criminal Procedure Code mandates
examination of the complainant. If the complainant is a company, only the authorised person
can represent the

company. As a result, “the company becomes a de jure complainant and it imposes or other
representative representing it in the criminal proceedings becomes the de facto complainant”

– National Small Industries Corporation Ltd., v. State (2009) Cr. LJ 1299 SC.

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Board of Directors have full authority by proper resolution to nominate/authorise any


employee, or director or manager to represent the company who is the payee in the criminal
proceedings. But such person should have full knowledge about the transaction contemplated
in section 138 of N.I. Act. But a director of the company alone, in his capacity as a director,
cannot represent the company without proper resolution by the Board.

CONCLUSION

The averments made in the complaint filed u/s 142 of N.I. Act must be full and complete. The
averments must disclose the name of the drawer who is the main accused, the cheque amount,
fact that the cheque was presented within the validity period, date of dishonour intimation
received by the payee, date of service of notice under proviso (b) to section 138, date on
which cause of action arises proviso (c) to section 138, reason for dishonour i.e. for
insufficient funds in drawee’s bank account or account balance exceeded cheque amount.
Dishonour of cheque for any other reason will not attract section 138 of the N.I. Act. If the
drawer is a company or a firm or a society or an association or any other non-living person,
name of the specific person responsible for the offence, and other ingredients to be disclosed
in the complaint providing that would give prima facie evidence to take cognizance of the
offence by the court. The Hon’ble Kerala High Court quashed the complaint because one of
the ingredients sufficient funds not available in the account of the drawer to honour the
cheque, is not provided in the complaint - Ashok and Another v. Vasudevan Moosad (1995)82
Comp. Case 665 ker. Page 670, para d & e.

Notwithstanding, dishonour of cheque was made a criminal offence warranting imprisonment


and fine, with effect from 01.04.1989, the incidence of dishonour of cheques did not come
down. The Government of India has claimed that around 18 lakhs cases (in 2015) filed u/s
142 of N.I. Act are pending disposal in various Indian courts.

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Sumeet Singh D-61

DISHONOUR OF CHEQUES

A cheque is a document that gives an order to a bank to pay a specific amount of money
mentioned on the cheque from a person's account to the person on whose name the cheque has
been issued. The person writing the cheque is known as the drawer. The drawer writes the
various details such as the monetary amount, date, and the name of the person on the cheque,
and signs it. Cheques were developed as a way to make payments without the need to carry
large amounts of money.
A cheque is a negotiable instrument instructing a financial institution such as bank to pay a
specific amount of a specific currency from a specified transactional account held in the
drawer's name with that institution.

Different types of cheques


 Bearer Cheque
A person having this cheque can withdraw the amount (only if it is signed). These types of
cheques are very risky and if it is misplaced can lead to loss of the amount mentioned on the
cheque. Anyone who finds it can withdraw the amount from the bank.
 Crossed Cheque
A bearer cheque becomes a crossed cheque by just crossing it twice with two parallel lines on
the left-hand top corner. Only person name written on it can get the amount transferred to his
account. No other person other than whose name is mentioned on the cheque can withdraw the
amount.
 Self Cheque
As the name suggests the account holders name is written on it to withdraw the money in
physical form from the branch where he holds his account.
 Post Dated Cheque
Post-dated cheques are the cheques which are issued with a future date on it. Once a cheque is
issued it is valid for three months only. It is used for business purposes or for making a payment
in a future date.
 Bankers Cheque
These cheques are issued by the bank itself and guarantee a payment.
 Traveler’s Cheque
These types of cheques can be used for withdrawal of money while travelling. It is equivalent
to carrying cash but one can travel safely without carrying huge amount. They can be used to
take out money in foreign countries while travelling.
Dishonour of cheques is of two kinds:
1. Dishonour of bill of exchange by non-acceptance
2. Dishonour of promissory note, bill of exchange or cheque by non-payment
When presentment for payment is made and the maker or acceptor makes default in making
the payment, there is dishonour of the cheque and also if there are certain circumstances when

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Sumeet Singh D-61

presentment for payment is excused and the instrument is deemed to be dishonoured even
without presentment. Thus, when the maker or the bank intentionally prevents the presentment
of the cheque it is deemed to be dishonoured even without presenting it
Notice of Dishonour
Notice of dishonour means information about the fact that the cheque has been dishonoured
and it is no more acceptable. A notice of dishonour of instrument or cheque is a formal notice
stating that the bank that a check or draft is presented to will not honour the instrument. A
notice of dishonour may be given to the holder or to the presenter of the instrument. It may also
be given to the institution who is issuing it. For example, Person A writes a cheque to a Person
B, but Person A has insufficient funds to pay the check. When Person B attempts to deposit
that check in his or her bank account, Person B’s bank returns it to Person A’s bank with a
notice of dishonour, stating that they will not pay the check due to insufficient funds. Person A
is now liable for the amount of the check, and, secondarily, so is Person A’s bank.

Dishonour of Cheque
A person suffers a lot if a cheque issued in his or her favour is dishonoured due to the
insufficiency of funds in the account of the drawer of the cheque. To prevent such dishonour,
dishonour of cheques has been made an offence by an amendment of the Negotiable Instrument
Act by the Banking, Public Financial Institution and Negotiable Instrument Laws (Amendment
) Act, 1988.
Section 138 makes the dishonour of cheque an offence. The payee or holder in due course can
have recourse against the drawer, who may be held responsible for the offence.
Under section 138, where any cheque drawn by a person from an account maintained by him
or her with a banker for payment of any amount of money to another person from out of that
account for the discharge, in whole or 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 held responsible to have
committed an offence and without prejudice to any other provision of this Act will be punished
with imprisonment [a term may be extended to 2 years], or with fine which may extend to twice
the amount of the cheque, or with both.

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Sumeet Singh D-61

Essential for an action under section 138


 There should be dishonour of cheque: - Section 138 makes dishonour of cheque in
certain cases an offence. Cheque is the most common mode of making the payment. In
order to protect the interest of its payee, there is an attempt to discourage dishonour of
a cheque by making it an offence.
 Payment in discharge of debtor liability: - The cheque should have been drawn by a
person on an account with a banker for payment of money to another person for the
discharge, in whole or part, of any debt or other liability. The debt or other liability in
such a case means a legally enforceable debt or other liability. If the payment by way
of cheque is made as gift or charity, it is not the payment for legally enforceable debt
or liability. The dishonour of such cheque does not attract the provisions of Section 138
of the Negotiable Instrument Act.
 Presentment of the cheque within the period of its validity: - It is necessary that the
cheque has to be presented before it became stale and invalid. It means that the cheque
has to be presented within a period of 6 months from the date on which it is drawn or
within the period of validity, whichever is earlier.
Dishonour may be because of 2 reasons:
1. Either the amount of money present in the account is insufficient
2. Or the amount to be paid has exceeded the amount to be paid from that account as
in the agreement made with that bank.
It has been generally held in various cases that dishonour due to the insufficiency of funds has
to be interpreted liberally. Dishonour due to the remarks like “Account closed”, “Refer to the
drawer” or “Stop payment” of the cheque may be deemed to be covered by the provision
contained in Section 138 of the Act.
Notice and demand from the drawer and drawer’s failure to pay
Within 15 days of receiving of information from the bank about the dishonour of the cheque,
the payee or holder in due course of the negotiable instrument, as the case may be, must make
a demand of the said amount from the drawer by giving a notice in writing.
Despite of such a notice the drawer of the cheque should fail to make the payment of the said
amount of money to the payee or the holder in due course of the cheque, within 15 days of
the receipt of the said notice.

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Sumeet Singh D-61

Circumstances in which a banker is justified in dishonouring customer’s cheque


 Payment countermanded by the drawer: - When the cheque drawer of the
cheque countermands the payment, that it issues the instruction to the bank not to
make the payment. On receiving such a valid stop payment order, the cheque must
be returned unpaid with the remark “payment countermanded by drawer”
 Notice of drawer’s death: - On receiving of the confirmed news of death of
account holder, cheques signed by him should be returned unpaid with the remark
“Drawer deceased”.
 Notice of customer’s insanity: - When the account holder is certified as insane or
mentally ill by a recognised medical practitioner then the cheques signed by him
should be returned unpaid.
 Notice of customer’s insolvency: - Where a customer is adjudged insolvent, the
banker must refuse and deny paying cheques drawn by the customer.
 Liquidation of company: - When a bank receives notice from the liquidator in
accordance with the provisions of Companies Act, requiring to pay the balance to
liquidator’s account, all the cheques by the companies should be returned unpaid.

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CASE LAW:
In common parlance a cheque is a financial instrument which is written by its owner, to order
his bank to pay a certain sum to another person from his account. The oxford dictionary
defines the term cheque as a written order to a bank to pay a stated sum from an account to a
specified person. In the legal arena, according to the Black’s law dictionary cheque is a draft
signed by the maker or drawer, drawn on a bank, payable on demand, and unlimited in
negotiability. As far as India is concerned, the law which governs the cheque transactions is
the Negotiable Instrument Act, 1881. In the eyes of Indian law, A cheque is a bill of
exchange drawn on a specified banker and not expressed to be payable otherwise on demand
and it includes the electronic image of a truncated cheque and cheque in the electronic form.

Sec 138 reads as follows:


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 provisions 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 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.

Setting the law in Motion


The cheque cases are the concoction of both negotiable instrument Act and criminal
procedure code. As per sec 138 the cheque has to be within the period of its validity, based on
the RBI notification the period of validity has been reduced from six months to three months.
The law is set in motion by issue of demand notice within thirty days of the receipt of
information by the payee or holder in due course of the cheque as the case may be regarding
the return of cheque as unpaid. If the drawer fails to remit the said amount within fifteen days
of the receipt of the said notice, sec 142 comes into play. According to sec 142 the court of
Metropolitan magistrate or a judicial magistrate shall take cognizance of the offence
enunciated in sec 138 only after filing of complaint made in writing by the payee or holder in
due course of the cheque. Provided that, no court inferior to that of a Metropolitan magistrate

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Gagan Mandavkar D-31

or a judicial magistrate has the authority to take cognizance of the offence. The court may
also condone the delay for filing the complaint. Indeed, the intention of the framers of clause
(b) of sec 142 is to give opportunity the complainant is case of any untoward situations.

In Sadanandan Bhadran vs Madhavan Sunil Kumar, the apex court held that Consequent
upon the failure of the drawer to pay the money within a period of 15 days as envisaged
under clause @ of the proviso to Sec 138, the liability of the drawer for being prosecuted for
the offence he has committed arises, and the period of one month for filing the complaint
under section 142 is to be reckoned accordingly.

Place of Suing
In K. Bhaskaran v. Sankaran Vaidhyan Balan wherein it was held that the offence under
Section 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, if the
five different acts were done in five different localities any one of the courts exercising
jurisdiction in one of the five local areas can become the place of trial for the offence under
Section 138 of the Act.

It was in Dashrath Rupsingh Rathod vs. State of Maharashtra, a three Judge Bench of the
Supreme Court overruled the ratio decidendi and held that the place of suing is determined by
the place where the offence was committed as per sec 177 of Criminal procedure code. Thus,
the Complainant is statutorily bound to comply with Section 177 etc. of the Cr.P.C. and
therefore the place of suits where the Section 138 Complaint is to be filed is not of his
choosing.

The above mentioned judgement prevailed till the birth of The Negotiable Instruments
(Amendment) Act, 2015. After the insertion of sub sec (2) of sec 142 in the Negotiable
Instrument Act the issue of place of suing has been settled.

As per the sub sec (2) of sec 142[22]:


The offence under section 138 shall be inquired into and tried only by a court within whose
local jurisdiction,-
(a) if the cheque is delivered for collection through an account, the branch of the bank where
the payee or holder in due course, as the case may be, maintains the account, is situated; or

b) if the cheque is presented for payment by the payee or holder in due course, otherwise
through an account, the branch of the drawee bank where the drawer maintains the account, is
situated.

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Gagan Mandavkar D-31

Proceedings in Dishonoured Cheque case Initial Proceedings Sec 143 empowers the Judicial
magistrate of the first class or Metropolitan magistrates to try the cases summarily as per the
provisions of sections 262 to 265 of the Criminal Procedure Code and the Magistrates under
this section has the authority to pass a sentence of imprisonment for a term not exceeding one
year and an amount of fine exceeding five thousand rupees. If the Magistrate apprehends that
a sentence of imprisonment for a term exceeding one year may have to be passed or for any
other reason undesirable to the case summarily the magistrate shall after hearing or rehearing
the parties and witnesses shall record the reasons in writing and proceed in the manner
stipulated in the code. For mode of service the magistrate may direct to serve the copy of the
summons through speed post or courier service approved by the Court of Session either at the
place where the accused or witness ordinarily resides or carries on business or personally
works for gain. In case of refusal to receive the court issuing the summons may declare that
the summons has been duly served.

Cognizance without physical appearance The essence of physical appearance has been
diluted by sec 145 this was done in order to render speedy justice. Sec 145 deals with
receiving evidence on affidavit. For taking cognizance it is not mandatory for the
complainant to come in-person to file the complaint. If the court is satisfied based on the
application either by the prosecution or the accused, can issue subpoena and examine any
person adducing evidence on affidavit.

The supreme court in Indian bank association vs. Union of India, held that the court has the
option of accepting affidavits of complainant and other witnesses instead of examining them
in the court, for their examination-in-chief - However, witnesses to the complaint and the
accused must be available for cross-examination as and when there is a direction to this effect
by the court.

In Areeplavan Finance vs. State of Kerala & Ors, Justice B Sudheendra Kumar held that it
is "abundantly clear from the object of enactment of Section 145 of the N.I. Act and the ratio
laid down by the Apex Court that the personal appearance of the complainant is not necessary
for taking cognizance of the offence.

Let us now shift our focus to certain requirements for making out an offence and for initiating
prosecution. It is equally important for us to examine legal issues settled by judgments of
Supreme Court. These judgements paved way for filling up deficiencies in the Act and also in
some cases provided for clarifications wherever ambiguity existed.

1. Post dated cheque and its dishonour:


Every cheque shall be presumed to be drawn on the date mentioned on the face of the
cheque. A post dated cheque is a bill of exchange when it is written or drawn and it is
not payable on demand until the date shown on the cheque. If post dated cheque is
dishonoured because of its presentation before it became payable on demand, no
offence u/s 138 can be alleged. The controversy is settled by the decision of the
supreme court in Anil Kumar Sawhney VS Gulshan Rai(1993) 4 SCC 424. In this
case the Supreme Court held that a post dated cheque is a bill of exchange and it
becomes a cheque under the NI act only on the date which is written on the said
cheque and period of six months has to be reckoned from the date of the cheque.
2. Jurisdiction:
Most often people are confused about the place where criminal complaint can be filed
under the NI Act, as the Act is silent on this matter. Since the Criminal courts are

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Gagan Mandavkar D-31

approached, the issue needs to be examined from the point of view of the Criminal
Procedure Code. Section 177 of CrPC provides that every offence shall ordinarily be
inquired into and tried by a Court within whose local jurisdiction it was committed.
Section 178 provides that offence imay be tried at by a court having jurisdiction over
any of the local areas where offence is committed. It is possible that an offence may
be committed in several local areas or partly in one area and partly in another area. It
is also possible that some times offence may consist of several acts done in different
areas on all the above situations, the court having jurisdiction over any of such local
areas may try the offence.
Judgements on Jurisdiction:
The judgement of supreme court In K Bhaskaran V Sankaran Vaidyaa Balan and
Anr(1999) 7 Scc 510 dealt with this issue elaborately. The Hon’ble Supreme court
opined that offence can be completed only with a concatenation of a number of acts,
namely, drawing of cheque, presentation of cheque, returning of the cheque by the
bank, notice by
Payee and failure of drawer of cheque within 15 days of receipt of notice. Any one of
the courts under whose jurisdiction the above acts have taken place can try the
offence. In other words complainant can file a complaint in any one of the courts
where the cause of arises or acts have been committed.

Compounding Provision:

According to sec 147 all offences which are punishable under this Act can be
compounded. This section plays a major role in decreasing the pendency ratio.

InJ&K Industries Ltd vs. Amarlal Vs. Juman, the top court observed that in view of
the non-obstante clause in sec 147 of the Act, the requirement of consent of the person
compounding in sec 320 of CrPc is necessary even in the case of compounding of
offences under the Negotiable Instruments Act. But the judgement didn’t withstand
for a long time.

The judgement was overruled by the court in M/S. Meters and Instruments Pvt. Ltd &
Anr vs. Kanchan Mehta wherein it was held that Though compounding requires
consent of both parties, even in the absence of such consent, the Court, in the interests
of justice, on being satisfied that the complainant has been duly compensated, can in
its discretion close the proceedings and discharge the accused. Therefore, from the
M/S. Meters and Instruments Pvt. Ltd & Anr vs. Kanchan Mehta verdict it can be
inferred that if the court finds that the complainant is duly compensated then the
courts in the interest of justice, have full power to close the trail without anyone’s
concurrence.

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AMENDMENTS TO THE NEGOTIABLE INSTRUMENTS ACT, 1881

The Negotiable Instruments Act, 1881 has been amended from time to time to make the law
relating to dishonour of the cheque more stringent against unethical drawers of cheques.
Repeated efforts have been made both by the Legislature and the Judiciary to curb the blatant
abuse of the process of law by the accused who delay the proceedings for dishonour of
cheques issued by them. However, despite several efforts, the law relating to dishonour of
cheques has failed to give respite to the complainants (payees of the cheques). Accused, not
only delay the proceedings at the stage of trial but also harass the complainant by filing an
appeal against the order of the trial court thus leaving the complainant struggling with
tedious, time-consuming and cumbersome court procedures without getting any timely relief.
Recently, amendments have been made to the ‘The Negotiable Instruments Act, 1881’ to
address this issue of undue delay in final resolution of cheque dishonour cases and discourage
frivolous and unnecessary litigation to provide relief to payees of the dishonored cheques.
Consequently, two new provisions have been inserted in the ‘The Negotiable Instruments
Act, 1881’ :

 Section 143A and,


 Section 148.

I . Section 143A :
In accordance with the new Section 143A, the trial court may now direct the drawer of the
cheque to pay an interim compensation to the payee/complainant, which shall not exceed
20% of the cheque amount in dispute. The drawer of the cheque has to pay the interim
compensation within 60 days from the date of the order passed by the court, or further within
a period not exceeding 30 days as may be directed by the court on showing sufficient cause
by the drawer. If at the time of final disposal of the case, the drawer is acquitted by the court,
the payee has to repay the amount of interim compensation to the drawer, with interest at the
bank rate prevalent at the beginning of the relevant financial year within 60 days from the
date of the order passed by the court, or further within a period not exceeding 30 days as may
be directed by the court on showing sufficient cause by the payee. Further, if on the
conviction of the drawer an amount of compensation is awarded by the court in favour of the
payee, it shall be reduced by the amount paid as interim compensation. The intent of this new
provision is to discourage the drawer/accused from contesting genuine claims, avoid delay
tactics and resolve the matter with the complainant.

II . Section 148 :
As per Section 148, the appellate court may direct the drawer in an appeal against the
conviction under Section 138 to deposit before the appellate court a part of the fine or
compensation as awarded by the trial court, which shall be a minimum of 20% of the fine or
compensation, within 60 days from the date of the order passed by the appellate court, or
further within a period not exceeding 30 days as may be directed by the appellate court on
showing sufficient cause by the drawer. The above deposit shall be in addition to any interim
compensation paid by the drawer under Section 143A, and the appellate court may direct to
release the deposit amount in favour of the payee at any time during the pendency of the
appeal. If at the time of final disposal of the appeal, the drawer is acquitted by the appellate
court, the payee has to repay the amount so released to the drawer, with interest at the bank
rate prevalent at the beginning of the relevant financial year within 60 days from the date of

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Prabal Pratap Singh D-48

the order passed by the appellate court, or further within a period not exceeding 30 days as
may be directed by the appellate court on showing sufficient cause by the payee. The intent
of the new provision is to discourage the drawer/accused from frivolous litigation and easing
the hardship of the complainant.
If the provisions are substantive in nature then the same cannot be applied Retrospectively to
the pending cases. However, if the provisions are procedural in nature then the same has to be
applied to all the cases, including the one pending before the Court.
Section 143A is substantive and hence effective prospectively, whereas section 148 is
procedural in nature hence effective retrospectively to the pending cases.
The above amendments to the Negotiable Instruments Act are steps in the right direction
with an expectation that these provisions would strengthen the credibility of issued cheques
and discourage unscrupulous drawers from evading liability by misusing legal processes.

Though the amendments can be justified theoretically yet A large number of cases are
reported to be pending under sections 138 to 142 of the Negotiable Instruments Act in
various courts in the country. Keeping in view the large number of complaints under the said
Act pending in various courts, a Working Group was constituted to review section 138 of the
Negotiable Instruments Act, 1881 and make recommendations as to what changes were
needed to effectively achieve the purpose of that section. “The Negotiable Instruments Act,
1881 was amended by the Banking, Public Financial Institutions and Negotiable Instruments
Laws (Amendment) Act, 1988 wherein a new Chapter XVII was incorporated for penalties in
case of dishonour of cheques due to insufficiency of funds in the account of the drawer of the
cheque. These provisions were incorporated with a view to encourage a culture of use of
cheques and enhancing the credibility of the instrument. The existing provisions in the
Negotiable Instruments Act, 1881, namely, sections 138 to 142 in Chapter XVII have been
found deficient in dealing with dishonour of cheques. Not only the punishment provided in
the Act has proved to be inadequate, the procedure prescribed for the courts to deal with such
matters has been found to be cumbersome. The courts are unable to dispose of such cases
expeditiously in a time bound manner in view of the procedure contained in the Act.

The Negotiable Instruments (Amendment) Act, 2018 (the "Amendment") was recently
passed by parliament and came into effect from September 1, 2018. It introduces substantial
changes to the Negotiable Instruments Act, 1881 (the "Act"), which may have a significant
impact on commerce and the ability of parties to transact through negotiable instruments.

This alert highlights the key changes introduced under the Amendment, and considers their
impact on the complainant (the "Complainant") and the drawer (the "Drawer") of
dishonored cheques.

Key changes
Drawer to pay interim compensation to the Complainant

The Amendment inserts a new section, Section 143A, in the Act. It empowers the courts, in a
summons trial or a summons case, to direct the Drawer to pay interim compensation to the
Complainant, in two scenarios: (i) at the time the Drawer pleads not guilty to the accusations
made in the complaint; or (ii) at the time of framing of the charge, in any other case.

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Prabal Pratap Singh D-48

The court can direct the Drawer to pay interim compensation of up to 20% of the amount of
the dishonoured cheque, within 60 days from the date of its order, or within a further period
of 30 days, if the Drawer provides sufficient cause for such delay. If the Drawer fails to pay
interim compensation within this time frame, the court may recover the said amount as a fine
under Section 421 of the Code of Criminal Procedure, 1973.

Power of appellate courts to order the Complainant to deposit a sum

Section 148 of the Act has been amended to state that if the Drawer appeals against an order
of conviction, the appellate court may order the Complainant to deposit with such court, a
minimum of 20% of the fine or compensation awarded by the lower court. This amount is in
addition to the interim compensation paid by the Drawer under Section 143A of the Act. The
amended provisions also give appellate courts the discretion to release this amount deposited
by an appellant Drawer, to the Complainant, during the pendency of the appeal.

However, if the Drawer is acquitted, the court has the authority to direct the Complainant to
repay the interim compensation to the Drawer, along with interest at rates prescribed by the
RBI at the beginning of the relevant financial year. This amount is payable by the
Complainant within 60 days from date of the order directing the Complainant to make
payment, or within a further period of 30 days, if the Complainant provides sufficient cause
for the delay.

Induslaw View

In a country which is plagued with immense delays in deciding criminal complaints under the
Act, the Amendment is a welcome change. Many Complainants write off the liability of the
Drawer, considering the enormous delays in deciding the complaints filed under the Act.

Given that the newly-introduced Section 143A provides for a portion of the cheque value to
be paid to the Complainant as interim compensation, the Complainant's rights will be
protected to an extent. The amended Section 148 further provides for additional amounts to
be deposited by the Drawer before the appellate court, if the Drawer is convicted. Since the
interim compensation has to be paid at the time of framing of the charge, the Drawer may
have to pay due attention to this process. This is vastly different from the position prior to the
Amendment, where the Drawer could delay making payments to the Complainant and could
delay proceedings to frustrate the rights of the Complainant.

The requirement to deposit interim compensation protects the Complainant against undue
financial strain, since, in most cases, the Drawer has benefitted from goods or services
provided by the Complainant without paying for them. Further, the Amendment may reduce
instances where the Drawer knowingly delays the trial to buy some time, only to settle the
case at a later date. The requirement to pay interim compensation at the early stages of the
trial may either compel the Drawer to settle the case at the early stage itself, or ensure that the
Complainant receives a portion of the money due to him.

However, on the flip side, the Drawer could be required to pay interim compensation even
before the guilt is adjudicated through a proper trial. The Amendment does not account for
situations where the cheques may have been issued under duress or coercion, or obtained
through fraud. There may also be situations when the cheques that are issued do not
correspond to a debt, which is sacrosanct for initiating proceedings under the Act. The

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Prabal Pratap Singh D-48

Amendment, essentially, presumes the guilt of the Drawer, for the purposes of awarding
interim compensation.

Further, though Section 143A of the Act provides that the courts may grant interim
compensation which shall not exceed 20% of the cheque value, the Amendment does not
provide for the basis to decide whether or not to grant the interim compensation.

The Amendment also does not set out any factors to be considered by the courts to decide
whether the entire 20% of the cheque value should be granted as interim compensation, or
any amounts lesser. In the absence of this, the courts would be at liberty to decide whether or
not to award interim compensation, and also to award the interim compensation on factors
they deem appropriate. Such unbridled discretion could lead to parties challenging court
orders, either granting, or failing to grant, interim compensation, before appellate or writ
courts, leading to increase in litigation.

While Section 143A of the Act empowers the court to order 'the drawer of the cheque' to pay
interim compensation to the Complainant, when read with Section 138 and Section 141 of the
Act, it appears that if a company commits an offence under Section 138 of the Act for the
dishonour of a cheque, the company and every person who, at the time the offence was
committed, was in charge of and responsible for the conduct of the company's business, shall
be deemed to be guilty of the offence and liable to be punished.

Therefore, there is a possibility that even non-executive directors and other persons who are
not in charge of the day-to-day affairs of the company (and, therefore, are not liable for the
offence) may also be called upon to pay the interim compensation to the Complainant on a
proportionate basis, even before the adjudication of their liability under the Act. The
Amendment provides no safeguards in this regard.

Further, the Amendment does not provide for any discretion to courts to waive the
requirement of paying the interim compensation at the request of the Drawer. In situations
where the Drawer is undergoing financial crisis or is in the process of liquidation, directing
the Drawer to pay the interim compensation may be onerous, particularly when the guilt of
the Drawer is yet to be adjudicated. The Amendment states that, in the event the Drawer
succeeds in the trial court or the appellate court, the interim compensation has to be repaid by
the Complainant, with applicable interest. Given that the Amendment does not account for a
situation where the Complainant is not in a position to repay the same, this may prejudice the
rights of the Drawer, if the Drawer ultimately succeeds in the case.

Although the Amendment sets out additional rights for the Complainant, it also imposes
conditions on the Drawer of the cheque. Only time will tell whether or not the Amendment
has the desired effect of increasing public confidence to deal with negotiable instruments for
commercial transactions.

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CONCLUSION

The above discussion makes clear that Negotiable instruments are the documents which are
related to the business transactions. Negotiable instruments play a major role in trade world.
We can use negotiable instruments for international trades. These instruments can either be
negotiable or non-negotiable. But they must come under one of the two categories. An
instrument can become negotiable either by salute or by mercantile usage. These instruments
are in written form so in case of non-payment the person to whom the payment to be made
can sue the other person by whom the payment shall be made. Bill of exchange, cheque and
promissory notes are three important negotiable instruments with different features.
These are the instruments which are broadly used for international trade. These instruments
are freely transferable by one person to another person any number of times. Cheque is a
document for easy payment but payment can only be made on demand and a cheque is valid
only for 3 months. There is no requirement of stamping. There is a particular form of cheque
and it is an order to pay. BOE is a written document that shows the indebtedness of the debtor
towards the creditor. It must be stamped and it cannot be made payable on demand.
Promissory note is a written promise to pay at a future specified date. These negotiable
instruments are still in use even after the electronic revolution. The electronics revolution is
considered as the next major step which replaces the negotiable instruments.

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REFERENCES

 VOLUME NO.7(2016),ISSUE NO.12(DECEMBER) ISSN0976-2183


JURISDICTIONFOR TAKING COGNIZANCE OF CRIMINAL COMPLAINTS FILED
UNDER SECTION 142 OF NEGOTIABLE INSTRUMENTS ACT 1881 -
THENEGOTIABLE INSTRUMENTS (AMENDMENT) ACT 2015 –IT’S CAUSE AND
CURE
 VOLUME NO. 8 (2017), ISSUE NO. 08 (AUGUST) ISSN 0976-2183 AN EXTENDED
STUDY ON THE OFFENCES UNDER NEGOTIABLE INSTRUMENTS ACT WITH SPECIAL
REFERENCE TO CHEQUE BOUNCING

 https://www.jstor.org/stable/pdf/43951372.pdf?ab_segments=0%252Fdefault-
2%252Fcontrol&refreqid=excelsior%3Ab43a24c3c5531ccdada2be4c72af49b5

 http://www.legalserviceindia.com/legal/article-621-an-overview-of-dishonoured-
cheque-case.html

 https://www.caclubindia.com/articles/critical-study-of-dishonour-of-cheques-under-
negotiable-instruments-act-1881-10283.asp

 https://www.advocatekhoj.com/library/bareacts/negotiableinstruments/index.php?Titl
e=Negotiable%20Instruments%20Act,%201881

 http://www.ddegjust.ac.in/studymaterial/mcom/mc-207-f.pdf

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