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Introduction:
Advent of cheques in the market have given a new dimension to the
commercial and corporate world, its time when people have
preferred to carry and execute a small piece of paper called
Cheque than carrying the currency worth the value of cheque.
Dealings in cheques are vital and important not only for banking
purposes but also for the commerce and industry and the economy of
the country. But pursuant to the rise in dealings with cheques
also rises the practice of giving cheques without any intention of
honoring them. Before 1988 there being no effective legal
provision to restrain people from issuing cheques without having
sufficient funds in their account or any stringent provision ot
punish them in the vent of such cheque not being honoured by their
bankers and returned unpaid. Of course on dishonour of cheques
there is a civil liability accrued. However in reality the
processes to seek civil justice becomes notoriously dilatory and
recover by way of a civil suit takes an inordinately long time. To
ensure promptitude and remedy against defaulters and to ensure
credibility of the holders of the negotiable instrument a criminal
remedy of penalty was inserted in Negotiable Instruments Act, 1881
in form of the Banking, Public Financial Institutions and
Negotiable Instruments Laws (Amendment) Act, 1988 which were
further modified by the Negotiable Instruments (Amendment and
Miscellaneous Provisions) Act, 2002[3]. This article endeavours to
elucidate the penal provision[4] light of the amendments and the
judicial interpretations.
Scope:
Of the ten sections comprising the chapter of the Act, section 138
creates statutory offence in the matter of dishonour of cheques on
the ground of insufficiency of funds in the account maintained by
a person with the banker. Section 138 of the Act can be said to be
falling either in the acts which are not criminal in real sense,
but are acts which in public interest are prohibited under the
penalty or those where although the proceeding may be in criminal
form, they are really only a summary mode of enforcing a civil
right. Normally in criminal law existence of guilty intent is an
essential ingredient of a crime. However the Legislature can
always create an offence of absolute liability or strict liability
where ‘mens rea’ is not at all necessary.
While
elucidating on this aspect the Kerala High Court in K. S. Anto v.
Union of India held that:
"Knowledge or reasonable belief, that pre requisite could be
statutorily dispensed with in appropriate cases by creating strict
liability offences in the interest of the Nation."
Further the
creation of the strict liability is an effective measure by
encouraging greater vigilance to prevent usual callous or
otherwise attitude of drawers of cheques in discharge of debts or
otherwise attitude of drawers of cheques in discharge of debts or
otherwise. The words as appearing in clause (b) of S. 138 cannot
be construed even to imply failure without reasonable cause in
view of the explicit language in which the provision is couched,
the principle of strict liability incorporated in the main
enacting clause.
Circumstances of dishonour:
The circumstances under which dishonour of cheque takes place or
that may contribute to the situation would be irrelevant and are
required to be totally ignored.
In Rakesh Nemkumar Porwal v. Narayan Dhondu Joglekar
the Bombay High Court held that:
"A clear
reading of Section 138 leaves no doubt in our mind that the
circumstances under which such a dishonour takes place are
required to be totally ignored. In such case, the law only takes
cognizance of the fact that the payment has not been forthcoming
and it matters little that any of the manifold reasons may have
caused that situation."
Ingredients
and requirements of the penal provisions:
Section 138 creates an offence for which the mental elements are
not necessary. It is enough if a cheque is drawn by the accused 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
discharge in whole or in part, of any debt or other liability due.
Therefore, whenever the cheques are on account of insufficiency of
funds or reasons referable to the drawer’s liability to provide
for funds, the provisions of section 138 of the Act would be
attracted, provided the following conditions are satisfied:
1. Existence of a live account
Existence of a "live account" at the time of issue of cheque is a
condition precedent for attracting penal liability for the offence
under this section. A cheque cannot be issued de hors an account
maintained by its drawer with the banker. When the cheque is
returned by the bank unpaid because of the account of money
standing to the credit of the cheque, to make demand for payment
as provided for payment as indicated in clause (b) of the proviso.
The words "that account" in the section denote to the account in
respect of which the cheque was drawn. No doubt if any person
manages to issue a cheque without an account with the bank
concerned its consequences would not snowball into the offence
described under section 138 of the Act. For the offence under
section 138 of the Act there must have been an account maintained
by the drawer at the time of the cheque was drawn.
2. Issue of Cheque in discharge of a debt or liability
The cheque issued unpaid by the bank must have been issued in
discharge of a debt or other liability wholly or in part. Where a
cheque is issued not for the purposes of discharge of any debt or
other liability, the maker of the cheque is not liable for
prosecution under section 138 of the Act. A cheque given as a gift
or for any other reasons and not for the satisfaction of any debt
or other liability, partly or wholly, even if it is returned
unpaid will not meet the penal consequences.
If the above conditions are fulfilled, irrespective of the mental
conditions of the drawer he shall be deemed to have committed an
offence, provided the other three requisites are fulfilled:
a) Presentation of the cheque within six months or
within the period of its validity
The cheque must have been presented to the bank within a period of
six months from the date on which it is drawn or its period of
validity, whichever is earlier. Thus if a cheque is valid for
three months and is presented to the bank within a period of six
months the provisions of this section shall not be attracted.
However if the period of validity of the cheque is not specified
or prescribed the cheque is presented within six months from the
date the cause of action can arise. The six months are taken from
the date the cheque was drawn.
b) Return of the cheque unpaid for reason of
insufficiency of funds
The cheque must be returned either because the money standing to
the credit of that account is insufficient to honour the cheque or
that it exceeds the arrangement made to be paid from that account
by an agreement with the bank. Even if the cheque is returned with
the endorsement "account closed" section 138 is attracted[15]
c) Issue of the notice of dishonour demanding payment
within thirty days of receipt of information as to dishonour of
the cheque.
The payee or the holder in due course of the cheque has to give a
notice in writing making a demand for payment of the said amount
of money to the drawer of the cheque. Such notice must be given
within 30 days[16] of information from the bank regarding the
return of cheque as unpaid[17].
d) Failure of the drawer to make the payment within
fifteen days of the receipt of the payment
After the receipt of the above notice the drawer of the cheque has
to make payment of said amount of money to the payee or to the
holder in due course of the cheque within 15 days of the receipt
of the notice. If the payment is not made after the receipt of the
notice within stipulated time a cause of action for initiating
criminal proceedings under this section will arise.
Constitutional validity of the provisions
In B. Mohana Krishna v. Union of India, the question came
up for consideration that whether the presumption raised in
section 139 that the holder of the cheque received the cheque of
the nature referred to in section 138, unless the contrary is
established is violative of Article 20 (3) of the Constitution of
India. The Court while answering negative held that:
"Unless a
person is compelled to be a witness against himself Article 20 (3)
has no application. The person charged under section 138 is not
compelled to be a witness against himself. The presumption of the
nature incorporated in section 139 is a common feature in criminal
statutes for example section 12 of the Protection of Civil rights
Act. The presumption under section 139 in favour of holder of
cheque would not, therefore be violative of Article 20 (3)."
Further such
imposition of strict liability was put to judicial scrutiny on
grounds of unreasonableness and arbitrariness in Mayuri Pulse
Mills v. Union of India where the Bombay High Court held
that:
"Normally
in Criminal law existence of a guilty intent is an essential
ingredient of a crime and the principle is expressed in the maxim
‘actus non facit rum nisi mens sit rea’. This is a general
principle. However the legislature can always create an offence of
absolute liability or strict liability are justified and cannot be
said to be unreasonable."
Section 138
was also put to test in Ramawati Sharma v. Union of India
in light of Article 21 of the Constitution of India where the
court held that;
"Mere
taking of loan is not, thus, made punishable under certain
circumstances and after following certain conditions. It may not,
therefore, be stated that the liberty of a person was being
curtailed by an arbitrary procedure or that such a provision is
violative of Article 21 of the Constitution"
In K.S.
Anto v. Union of India the question of double jeopardy
as enshrined in Article 20 (2) in light of section 138 and section
420 of the Indian Penal Code where the court held that:
"Offences
under section 138 of the Negotiable Instruments Act and section
420 of the Penal Code are different and the ingredients are
different and the ingredients are also different. Convictions for
different offences separately is not barred under article 20 (2).
In spite of prosecutions and convictions under section 138, there
will be no constitutional bar in prosecution for an offence
punishable under section 420 of the Penal Code and a prosecution
will be if such an offence is made out."
Question of
maintainability of criminal charge with a civil liability:
There is nothing in law to prevent the criminal courts from taking
cognizance of the offence, merely because on the same facts, the
person concerned might also be subjected to civil liability or
because civil remedy is obtainable. Civil and criminal proceedings
are co extensive and not exclusive. If the elements of the offence
under section 138 of the Negotiable Instruments Act are made out
on the face of the complaint petition itself, enforcement of the
liability through a civil court will not disentitle the aggrieved
person from prosecuting the offender for the offence punishable
under section 138 of the Act
Conclusion
Though insertion of the penal provisions have helped to curtail
the issue of cheque lightheartedly or in a playful manner or with
a dishonest intention and the trading community now feels more
secured in receiving the payment through cheques. However there
being no provision for recovery of the amount covered under the
dishonoured cheque, in a case where accused is convicted under
section 138 and the accused has served the sentence but, unable to
deposit amount of fine, the only option left with the complainant
is to file civil suit. The provisions of the Act do not permit any
other alternative method of realization of the amount due to the
complainant on the cheque being dishonored for the reasons of
"insufficient fund" in the drawer’s account. The proper course to
be adopted by the complainant in such a situation should be by
filing a suit before the competent civil court, for realization/
recovery of the amount due to him for the reason of dishonoured
cheque which the complainant is at liberty to avail of if so
advised in accordance with law.
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Authored by Sunando Mukherjee and can be reached at
:
sunandomukherjee@rediffmail.com
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