The judgements primarily discuss and rule upon Section 138 of the Negotiable Instruments Act which lays down the law regarding cheque bounce in India. When a cheque is returned by the bank unpaid, it is said to be dishonored or bounced. Cheque bounce could occur due to several reasons such as insufficiency of funds, etc. When the cheque is bounced for the first time, the bank issues a ‘cheque return memo’ along with reasons for non-payment.
The Supreme Court has ruled on Section 138 i.e. cheque bounce several times and have in turn made the law against the giver of the cheque more stringent.
Whether the cheque bounce case has to be initiated at the place where the branch of the bank on which the cheque was drawn is located?
Whether prosecution based on second or successive dishonour of the cheque is right?
Whether the court is right in closing the proceeding against the accused if the cheque amount with interest is paid by the accused and whether summon trial procedure can be followed in such case?
Whether the Director who has resigned can be prosecuted after his resignation has been accepted by the Board of the Directors of the Company?
In one of the matters, it was held that the prosecution based on second or successive dishonour of the cheque is also permissible so long as it satisfies the requirements stipulated under the proviso to Section 138 of the Act.
Furthermore, three distinct conditions that must be satisfied before the dishonour of a cheque can constitute an offence and become punishable were discussed:
(i) The cheque ought to have been presented to the bank within a period of 3 months from the date on which it is drawn or within the period of its validity, whichever is earlier.
(ii) The payee or the holder in due course of the cheque, as the case may be, ought to make a demand for the payment of the said amount of money by giving a notice in writing, to the drawer of the cheque, within 30 days of the receipt of information by him from the bank regarding the return of the cheque as unpaid.
(iii) The drawer of such a cheque should have failed to make 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 15 days of the receipt of the said notice.
??In one of the judgements, the Supreme Court also held that where the cheque amount with interest and cost as assessed by the Court is paid by a specified date, the Court is entitled to close the proceedings in exercise of its powers under Section 143 of the Act read with Section 258 Cr.P.C. It was also observed in the same case that, normal rule for trial of cases under Chapter XVII of the Act is to follow the summary procedure and summons trial procedure can be followed where sentence exceeding one year may be necessary taking into account the fact that compensation under Section 357(3) Cr.P.C. with sentence of less than one year will not be adequate, having regard to the amount of cheque, conduct of the accused and other circumstances.
While deciding a matter related to Director’s liability, the Supreme Court held that vicarious liability is contemplated in the NI Act to ensure greater transparency in commercial transactions- this object has to be kept in mind while considering individual cases and hardship arising out of a particular case cannot be the basis for Directors to try to wriggle out of prosecution. Section 482 of the Code can be invoked where it is clear from documents on record, such as Form-32, that the Director is wrongly arraigned and not in any other case.
Supreme Court of India
Dashrath Rupsingh Rathod vs State Of Maharashtra & Anr on 1 August, 2014
Author: T Thakur
Bench: T.S. Thakur, Vikramajit Sen, C. Nagappan
REPORTABLE
IN THE SUPREME COURT OF INDIA
CRIMINAL APPELLATE JURISDICTION
CRIMINAL APPEAL NO. 2287 OF 2009
Dashrath Rupsingh Rathod …..Appellant
Versus
State of Maharashtra & Anr. …..Respondents
W I T H
CRIMINAL APPEAL NO. 1593 OF 2014
[Arising out of S.L.P.(Crl.)No.2077 of 2009];
CRIMINAL APPEAL NO. 1594 OF 2014
[Arising out of S.L.P.(Crl.)No.2112 of 2009];
CRIMINAL APPEAL NO. 1595 OF 2014
[Arising out of S.L.P.(Crl.)No.2117 of 2009];
CRIMINAL APPEAL NOS. 1596-1600 OF 2014
[Arising out of S.L.P.(Crl.)Nos.1308-1312 of 2009];
CRIMINAL APPEAL NO.1601 OF 2014
[Arising out of S.L.P.(Crl.)No.3762 of 2012];
CRIMINAL APPEAL NO. 1602 OF 2014
[Arising out of S.L.P.(Crl.)No.3943 of 2012];
CRIMINAL APPEAL NO.1603 OF 2014
[Arising out of S.L.P.(Crl.)No.3944 of 2012]; AND
CRIMINAL APPEAL NO. 1604 OF 2014
[Arising out of S.L.P.(Crl.)No.59 of 2013].
J U D G M E N T
VIKRAMAJIT SEN, J.
Leave granted in Special Leave Petitions. These Appeals raise a legal nodus of substantial public importance pertaining to Court’s territorial jurisdiction concerning criminal complaints filed under Chapter XVII of the Negotiable Instruments Act, 1881. This is amply adumbrated by the Orders dated 3.11.2009 in I.A.No.1 in CC 15974/2009 of the three-Judge Bench presided over by the then Hon’ble the Chief Justice of India, Hon’ble Mr. Justice V.S. Sirpurkar and Hon’ble Mr. Justice P. Sathasivam which SLP is also concerned with the interpretation of Section 138 of the NI Act, and wherein the Bench after issuing notice on the petition directed that it be posted before the three-Judge Bench.
PRECEDENTS The earliest and the most often quoted decision of this Court relevant to the present conundrum is K. Bhaskaran v. Sankaran Vaidhyan Balan (1999) 7 SCC 510 wherein a two-Judge Bench has, inter alia, interpreted Section 138 of the NI Act to indicate that, “the offence under Section 138 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.” The provisions of Sections 177 to 179 of the Code of Criminal Procedure, 1973 (for short, ‘CrPC’) have also been dealt with in detail. Furthermore, Bhaskaran in terms draws a distinction between ‘giving of notice’ and ‘receiving of notice’. This is for the reason that clause (b) of proviso to Section 138 of the NI Act postulates a demand being made by the payee or the holder in due course of the dishonoured cheque by giving a notice in writing to the drawer thereof. While doing so, the question of the receipt of the notice has also been cogitated upon.
The issuance and the receipt of the notice is significant because in a subsequent judgment of a Coordinate Bench, namely, Harman Electronics Pvt. Ltd. v. National Panasonic India Pvt. Ltd. (2009) 1 SCC 720 emphasis has been laid on the receipt of the notice, inter alia, holding that the cause of action cannot arise by any act of omission or commission on the part of the ‘accused’, which on a holistic reading has to be read as ‘complainant’. It appears that Harman transacted business out of Chandigarh only, where the Complainant also maintained an office, although its Head Office was in Delhi. Harman issued the cheque to the Complainant at Chandigarh; Harman had its bank account in Chandigarh alone. It is unclear where the Complainant presented the cheque for encashment but it issued the Section 138 notice from Delhi. In those circumstances, this Court had observed that the only question for consideration was “whether sending of notice from Delhi itself would give rise to a cause of action for taking cognizance under the NI Act.” It then went on to opine that the proviso to this Section “imposes certain further conditions which are required to be fulfilled before cognizance of the offence can be taken.” We respectfully agree with this statement of law and underscore that in criminal jurisprudence there is a discernibly demarcated difference between the commission of an offence and its cognizance leading to prosecution. The Harman approach is significant and sounds a discordant note to the Bhaskaran ratio. Harman also highlights the reality that Section 138 of the NI Act is being rampantly misused so far as territorial jurisdiction for trial of the Complaint is concerned. With the passage of time equities have therefore transferred from one end of the pendulum to the other. It is now not uncommon for the Courts to encounter the issuance of a notice in compliance with clause (b) of the proviso to Section 138 of the NI Act from a situs which bears no connection with the Accused or with any facet of the transaction between the parties, leave aside the place where the dishonour of the cheque has taken place. This is also the position as regards the presentation of the cheque, dishonour of which is then pleaded as the territorial platform of the Complaint under Section 138 of the NI Act. Harman, in fact, duly heeds the absurd and stressful situation, fast becoming common-place where several cheques signed by the same drawer are presented for encashment and requisite notices of demand are also despatched from different places. It appears to us that justifiably so at that time, the conclusion in Bhaskaran was influenced in large measure by curial compassion towards the unpaid payee/holder, whereas with the passage of two decades the manipulative abuse of territorial jurisdiction has become a recurring and piquant factor. The liberal approach preferred in Bhaskaran now calls for a stricter interpretation of the statute, precisely because of its misemployment so far as choice of place of suing is concerned. These are the circumstances which have propelled us to minutely consider the decisions rendered by two-Judge Benches of this Court. It is noteworthy that the interpretation to be imparted to Section 138 of the NI Act also arose before a three-Judge Bench in Shri Ishar Alloy Steels Ltd. v. Jayaswals Neco Ltd. (2001) 3 SCC 609 close on the heels of Bhaskaran. So far as the factual matrix is concerned, the dishonoured cheque had been presented for encashment by the Complainant/holder in his bank within the statutory period of six months but by the time it reached the drawer’s bank the aforementioned period of limitation had expired. The question before the Court was whether the bank within the postulation of Section 138 read with Sections 3 and 72 of the NI Act was the drawee bank or the collecting bank and this Court held that it was the former. It was observed that “non-presentation of the cheque to the drawee bank within the period specified in the Section would absolve the person issuing the cheque of his criminal liability under Section 138 of the NI Act, who otherwise may be liable to pay the cheque amount to the payee in a civil action initiated under the law. A combined reading of Sections 3, 72 and 138 of the NI Act would leave no doubt in our mind that the law mandates the cheque to be presented at the bank on which it is drawn if the drawer is to be held criminally liable.” Clearly, and in our considered opinion rightly, the Section had been rendered 'accused-centric’. This decision clarifies that the place where a complainant may present the cheque for encashment would not confer or create territorial jurisdiction, and in this respect runs counter to the essence of Bhaskaran which paradoxically, in our opinion, makes actions of the Complainant an integral nay nuclear constituent of the crime itself....
Download complete judgement by clicking on the button given below >>
The judgments discuss and rule on the law of cheque bounce under Section 138 of the Negotiable Instruments Act 1881.
The Negotiable Instrument act, 1881 (hereinafter referred to as the ‘NI Act’) encapsulates the legal framework for the use and operation of negotiable instruments in our country. Cheques are also a form of negotiable instrument and therefore fall under the purview of the NI Act. Among the penal provisions of the NI Act, Section 138 provides for the punishment in case of dishonour of cheques. Section 138 provides the punishment for cheque bounce and states that in case a cheque made for the discharge in-whole/in-part of any debt/liability is dishonoured for either insufficiency of funds or for the amount exceeding the arrangement with the bank, the drawer of such cheque shall be punishable under this provision.
The following are the essential ingredients for constituting the offence under Section 138 of the NI Act:
1. A person must have drawn the cheque in favour of another person to discharge any debt or other liability wither in whole or in part
2. The cheque must have been presented for payment within the validity of the cheque i.e., within three months of the date of the cheque
3. The cheque must have been dishonoured for one of the following two reasons;
a. Insufficiency of funds in the account
b. Value of the cheque exceeding the amount arranged to be paid from such account by an agreement made with the bank
4. The payee makes a demand to the drawer through a notice in writing, for the payment of the amount in the cheque within a period of 15 days from receiving information from the bank regarding the return of the cheque as unpaid
5. Failure of the drawer to make such payment to the payee within a period of 15 days from the receipt of the demand notice from the payee
Pertinently, Section 138 provides a punishment of imprisonment for a period which may extend to 1 year or with fine which may extend to twice the amount of the cheque, or with both.
Cheque bounce can attract possible criminal charges. By hiring a cheque bounce lawyer to file or to defend a cheque bounce case is one way you can ensure that you are on the right path in your cheque bounce journey. While the lawyer will need to gather information from you regarding the case, he or she will also take care of all the paperwork, allowing you more time to take care of your business and other priorities. An experienced attorney can give you expert advice on how to handle your cheque bounce case owing to his years of experience in handling such cases. A cheque bounce lawyer is an expert on the laws and can help you avoid significant mistakes that may cause financial or legal harm, which may require future legal proceedings to correct. A lawyer would also ensure you are directed on the right path regarding which kind of case to opt for. Thus, by hiring an attorney a person can make sure that he and his interests are protected under the law.
634+ Lawyers are online 
