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DISHONOUR OF CHEQUES -LEGAL IMPLICATIONS

DISHONOUR OF CHEQUES -LEGAL IMPLICATIONS

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  • The company incorporated under the companies Act and doing the business of manufacturing polyester yarn.

Presentation On 138  Vijyant  113 Presentation On 138 Vijyant 113 Presentation Transcript

  • GSL (India) Ltd.
    • GSL means a better yarn
  • and the legal team of GSL
    • Welcomes to all
  • PRESENTATION ON: SECTION 138 of the Negotiable Instruments Act 1881 and the Amendments of the Act
  • An Overview by:
    • Vijyant Nigam
    • Law Officer
  • Under the thankful cooperation and guidance of:
    • Syt. Ashish Babu
    • Sri. B. Bhushan
    • Sri. Prem Jha
    • Sri. Mahesh Pareek
    • &
    • Sri. Manoj Sinsinwar
  • [ Act No. 26 of Year 1881 , dated 9-12- 1881 ]
    • Negotiable Instruments Act 1881
    • Came into force on 1 st March, 1882
  • the said act was enacted to define and to provide the law relating to
    • promissory notes,
    • bills of exchange
    • and cheques !
  • Promissory Note:
    • Section 4 of the Act defines:
    • A Promissory Note is an instrument in writing containing an unconditional undertaking signed by the maker to pay a certain sum of money only to, or to the order of a certain person, or to the bearer of the instrument.
  • Bill of Exchange:
    • Section 5 of the Act defines:
    • A bill of exchange is an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to, or to the order of, a certain person or to the bearer or to the bearer of the instrument
  • Cheque:
    • Section 6 of the Act defines:
    • A cheque is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand.
    • Or we can say a cheque is a bill of exchange which is payable on demand and which is drawn on a specified banker.
    • But the cheques have assumed great importance these days due to rapid industrialisation followed by the economic liberalisation or because of the increasing participation in the international commercial activities. Increasing use of the cheque called for strengthening the reliability of payment when made through cheque so that cheques could be used with more credibility and better reliance.
  • Two things were of great concern viz. , such provisions were required to be made that prove to be of deterrent effect to the others and in case of dishonouring of cheque, the amount is paid to the payee as early as possible together with interest and compensation.
    • In other words, the emphasis was on the speedy justice, exemplary and compensatory justice
  • From 1 st April 1989 ( 1988 Amendment )
    • If a person issues a cheque and it got dishonoured the person is said to have done an offence .
    • Whatever be the reason for the dishonour weather for insufficiency of funds or whatever, the same does not matter.
  • 1988 Amendment
    • towards achieving the goal on the speedy justice, exemplary and compensatory justice new provisions with enlightened jurisprudential foundation were engrafted and put on the statute book in the year 1988 in the form of institution of
    • Chapter XVII
    • to the Negotiable Instruments Act, 1881
  • Chapter XVII
    • The said chapter was incorporated for penalties in case of dishonour of cheques due to insufficiency of funds in the account of the drawer of the cheque or whatsoever (like stop payment etc.).
    • Object
    • These provisions were incorporated with a view to encourage the culture of use of cheques and enhancing the credibility of the instrument.
    • The larger objective is to protect the interest of honest people dealing in cheques.
  • 1988 Amendment
    • DRAWER BEWARE
    • Because, by the said amendment the DISHONOURED CHEQUE is being TREATED as an CRIMINAL OFFENCE
  • Certain new sections included in the Negotiable Instruments Act through the Chapter XVII and are numbered as:
    • Section 138 , 139,
    • 140 and 141
  • New sections in the Chapter XVII
    • Section 138 :
    • this section defines the dishonour of cheque is an offence. The same also defines the main ingredients which have to be fulfilled to made it, an offence.
  • Basic Presumption of Section 138:
    • Dishonour of Cheque is an Offence
  • Five basic ingredients of section 138 which shall have to be fulfilled for creating an offence for dishonour of a cheque
    • cheque should have been drawn by the drawer in payment of a legal liability to discharge the existing debt. Cheque given by way of gift would not come under this provision.
    • The cheque should be presented within the validity period i.e. within six months or three months as the case may be. Common sense demands that the cheque should reach the drawer bank within the validity period.
    • Return memo by the drawer bank to the drawee bank and subsequently by the drawee bank to the drawee reporting that the cheque got unpaid is must. Reasons for dishonour is not material at this stage.
    • Giving notice to the drawer of the cheque by the drawee or the holder of the cheque in due course is must for making the said payment within fifteen days. The notice must be sent to drawer within 15 days (amended to 30 days by the 2002 amendment) of the receipt of the information from the drawee bank that the cheque got dishonoured.
    • The drawer of the cheque fails to make the payment of the said amount of money to the payee or to the holder in due course within 15 days of the receipt of the said notice.
  • Supreme Court also held in K. Bhaskaran Vs. Sankaran Vaidyan Balan:
    • It’s not necessary that all the five acts should have been perpetrated at the same locality. It is possible that each of those five acts could be done at five different areas.
    • In this context a reference to section 178 (d) of the Cr. P. C. is useful:
    • Where the offence consists of several acts done in different local areas, it may be inquired into of tried by a court having jurisdiction over any of such local areas.
  • Moreover the section 138 also provides for the punishment for dishonour of cheque:
    • viz . imprisonment for a term which may extend to one year , or with fine which may extend to twice the amount of the cheque, or with both .
    • (the term of punishment extended to two years vide 2002 amendment )
  • New sections in the Chapter XVII
    • Section 139 :
    • By this section it shall be presumed that the holder of a cheque received the cheque for the discharge of some liability or any debt.
  • New sections in the Chapter XVII
    • Section 140 :
    • This section says that defence in the prosecution under section 138 shall not be available to the drawer if the ingredients of 138 are completed.
  • New sections in the Chapter XVII
    • Section 141 :
    • This section defines that if an offence done by any company , the person/s shall be held liable who were in charge and responsible to the company, for the conduct of the business of the company, at the time the offence under section138 was committed.
  • 1988 amendment
    • The object of the amendment was, “to enhance the acceptability of cheques in settlement of liabilities by making the drawer liable for penalties in case of bouncing of cheques”.
  • Supreme Court examined:
    • The provisions of sections 138 and 141 of the Act and noted that mere dishonour of a cheque would not raise a cause of action unless the payee makes a demand in writing to the drawer of the cheque for the payment and drawer fails to make the payment of the said amount of money to the payee.
  • Section 141:
    • The chapter XVII of the Act gained much importance among companies due to the section 141 because, this is the section, through which the persons shall be held liable for the conduct / offence committed under the Act by a company.
    • The section also gave a reason to think twice to the responsible person/s of a company who makes commitment for and on behalf of the company to pay someone through negotiable instrument/s.
  • More Over From 06.02.2003 (by the 2002 amendment )
    • The said offence will be punishable with imprisonment for a term up to 2 years or with fine twice the amount of the cheque or both
    • under section 138 of the Act
  • 2002 Amendment
    • Another amendment came into force from 06.02.2003 as
    • Negotiable Instruments (Amendment and Miscellaneous Provisions) Act, 2002
    • Through the said amendment:
    • Sections 6, 64, 81 and 89 have been amended due to entrance of the electronic technology in the Negotiable Instruments.
    • Section 138(a) amended regarding the term of imprisonment increased to Two years from One year and through 138(b) the period of giving notice of demand to the drawer increased from fifteen days to thirty days .
  • 2002 Amendment
    • Section 142(b) amended by the insertion of a proviso: “ 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. ”
    • Note: Prior to this amendment there was no provision in the Act for the condonation of delay in preferring the complaint under section 138.
  • 2002 Amendment
    • Moreover new sections from 143 to 147 have been inserted for the speedy disposal of the cases under section 138 .
    • Note: The aforesaid sections were inserted to boost up the speed of the proceedings in courts in the cases under section 138 of the Act
  • New sections inserted through the 2002 amendment:
    • Section 143 :
    • This section provides the power to courts to try cases, under section 138, summarily and the trial of the case, as far as practicable, should be continued from day to day until its conclusion and endeavour is to be made to conclude the trial within six months.
  • New sections inserted through the 2002 amendment:
    • Section 144 :
    • This section provides that the copy of summon/s may also be issued by speed post or by such courier services as are approved by a court of session.
  • New sections inserted through the 2002 amendment:
    • Section 145 :
    • This section provides that the evidence of a complainant may be given by him in an affidavit and that will be read in evidence, and the court, if it thinks fit, shall on application of the prosecution or the accused, summon and examine any person who is giving evidence on affidavit.
  • New sections inserted through the 2002 amendment:
    • Section 146 :
    • This section provides the court shall presume the fact of dishonour of a cheque on production of Bank’s slip or memo having thereon the official mark denoting that the cheque has been dishonoured.
  • New sections inserted through the 2002 amendment:
    • Section 147 :
    • Every offence punishable under this Act shall be compoundable .
    • Which means that a compromise in the matters under section 138 can be made between the complainant and the accused at any stage of the case.
  • Meaning of Compoundable in 138 N. I. Act:
    • The case may be closed and the accused may be discharged, by the magistrate but only on his sole discretion, if some settlement executed between the complainant and the accused and the complainant gave his statement before the magistrate that he want to close the matter and they (complainant and the accused) have settled upon a certain conditions and now the complainant has no more grievance against the accused.
    • Compounding can be done at any stage of the case whether it is before the original magistrate or before any appellate authority.
  • Some frequently asked queries on the chapter of section 138 of the act:
    • What is Pay order and Holder in Due Course ?
    • Supreme court held in the matter of Punjab and Sindh Bank Vs Vinkar Sahakari Bank Ltd. and ors. (AIR 2001 SC 3641, 2001 AIR SCW 3709)
    • Pay order is also a negotiable Instrument.
    • 21. Section 142 of the Act envisages a complaint to be made in writing "either by the payee or the holder in due course of the cheque, as the case may be". Section 8 of the Act defines "holder" as any person entitled in his own name to the possession of the cheque and to receive or recover the amount due thereon from the parties thereto. We have no doubt that complainant-bank was well within its right to possess the cheque and to receive or recover the amount covered by the instrument. "Holder in due course" means a person who for consideration became the possessor of a cheque if payable to bearer before the amount became payable. (vide S. 9).
    • 22. In this context reference has to be made to S. 118(g) of the Act which contains a mandate that until the contrary is proved the holder of a negotiable instrument shall be presumed to be a holder in due course .
  • Some frequently asked queries on the chapter of section 138 of the act:
    • Where does the Nominee Director Stand ?
    • Supreme Court observed in Punjab National Bank Vs. Surendra Prasad Sinha (AIR 1992 SC 1815)
    • The answer is that a nominee director enjoys full immunity under the newly enacted provisions of the Negotiable instruments Act.
    • Basically a Nominee Director is a person appointed in a company for observation by some other company (mainly financial or governmental) whose interest involve in the business of the said company
    • A nominee director whose position is purely non-executive in the board of a company fully protected against prosecution and harassment under section 141 .
    • The vicarious liability of a person for being prosecuted for an offence committed by a company arises if at the material time he was in charge of and responsible to the company for the conduct of its business.
  • Some frequently asked queries on the chapter of section 138 of the act:
    • Weather a Non-Bailable Warrant Can be issued for the offence under section 138 ?
    • Madras High Court Observed:
    • Personal liberty of a person is protected under Article 21 of the Constitution Of India. Therefore a Non-Bailable warrant shall not be issued under section 138 cases unless it is absolutely necessary.
    • Considering that section 138 is a matter of dispute between two individuals relating to civil liabilities and the magistrate shall always use his discretion in favour of the accused and issue only a Bailable Warant.
    • The offence is Bailable .
  • Some frequently asked queries on the chapter of section 138 of the act:
    • Can second notice of demand from drawer gave a new cause to the drawee ?
    • The answer is NO.
    • the drawee, of a cheque that is dishonoured, has only one life i.e. only one cause for action that he has to use within the prescribed time and file the case. Else, this will become a technical defence that the court will have to uphold.
    • It’s a technical defence for the accused.
  • Some frequently asked queries on the chapter of section 138 of the act:
    • Post-Dated Cheque (PDC) is a Valid Instrument ?
    • The answer is Yes .
    • Supreme Court in Ashok Yashwant Badve Vs Surendra Madhavrao Nighojkar and anr. ( AIR 2001 SC 1315 ) has resolved the issue.
    • A PDC is a cheque that bears a date that is after the date when the cheque is made out, signed and delivered and is given to the creditor well in advance so that he can present it on such due date.
  • Some frequently asked queries on the chapter of section 138 of the act:
    • Shall Section 138 apply in case of a Disnonoured Cheque drawn without any liability to pay ?
    • Cheque should have been drawn by the drawer in payment of a legal liability to discharge the existing debt.
    • Supreme Court in C. Anthony Vs K. Raghavan Nair ( 2002 SOL Case No.550 supremecourtonline.com ) has resolved the issue.
    • It is necessary for the drawee/ complainant to prove before the court that the cheque was received by him in the discharge of some liability.
    • If complainant could not prove that the cheque was in the discharge of some liability, the complaint will be dismissed and the accused will be acquitted.
  • Some frequently asked queries on the chapter of section 138 of the act:
    • Who can take cognizance of the offence under section 138 ?
    • As per the Section 142 (c) of the Act.
    • No court inferior to a Metropolitan Magistrate or a Judicial Magistrate can try the offence.
  • Supreme Court Case: K. Bhaskaran Vs Sankaran Vaidyan Balan
    • A case between two brothers for the offence under section138:
    • In this case the court held that the
    • burden is on the accused to rebut the presumption of section 139 that holder of a cheque received it for discharge of any debt or liability .
  • Section 29(2) of Cr. P. C.: Fine can not be more than Rs.5,000/-
    • In the previous case the Supreme Court also held that the appellate court shall not inflict greater punishment for the offence which in its opinion the accused has committed, then might have been inflicted for that offence by the court passing the order or sentence under appeal.
    • In this context a reference to section 29(2) of the Cr. P. C. is necessary as it contains a limitation for the magistrate of first class in the matter of imposing fine as a sentence or as a part of the sentence.
  • Goaplast V/s Shri Chico Ursula D’ Souza
    • Stop Payment Instructions will not take a case out of the purview of Section 138, it has elaborated on the reasons why this should be so. More importantly, it would follow from the judgments affirming this position that the court will give great credence to the presumption that cheques have been issued in discharge of a debt or liability and will not accept any argument to the contrary.