Cheque is one of the most widely used means of payment. The use of cheque has increased tremendously with the rapid increase in commerce and trade and so have the cheque bouncing disputes. Section 138 of the Negotiable Instruments Act, 1881 defines the offence of dishonour of cheque and provides for its punishment.
The said section states that if a cheque drawn by a person is returned by the bank unpaidfor insufficiency of funds or that the amount of money 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. The offence under Section 138 has the following three ingredients (DashrathRupsinghRathod v. State of Maharashtra, (2014) 9 SCC 129):
(a) cheque is drawn by the accused on an account maintained by him with a banker;
(b) the cheque amount is in discharge of a debt or liability; and
(c) the cheque is returned unpaid for insufficiency of funds or that the amount exceeds the arrangement made with the bank, the offence standing committed the moment the cheque is returned unpaid.
However, taking cognizance of the offence by any court is forbidden so long as the complainant does not have the cause of action to file a complaint in terms of clause (c) of the proviso read with Section 142 of the Act. So, for constituting an offence under Section 138 of the Act, three condition precedents must be satisfied:
(i) The cheque ought to have been presented to the bank within a period of 6 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.
Therefore, Section 138 also provides for safeguards to protect drawers of cheques where dishonour may take place for reasons other than those arising out of dishonest intentions.It envisages service of a notice upon the drawer of the instrument calling upon him to make the payment covered by the cheque and permits prosecution only after the expiry of the statutory period and upon failure of the drawer to make the payment within the said period (LaxmiDyechem v. State of Gujarat, (2012) 13 SCC 375.)
Upon the happening of a cheque bounce, the complainant has a cause of action. Either or both civil and criminal complaints can be filed. In case of a criminal complaint, the drawer of the cheque will be punished with imprisonment for maximum2 years or fine which may extend to twice the amount of the cheque or both.
In case someone wants to go for civil proceeding, a money recovery suit has to be filed under Order 37 of Civil Procedure Code within 3 years of the date of cause of action. The drawer of the cheque will be ordered to pay the full amount of the cheque and the interest accrued from the date of suit to the date of decree. If a sufficiently large amount is involved it is advisable to file both.
A relevant issue for the offence under Section 138 is where the case is to be filed. Section 142(2)(a) states that if the cheque delivered through an account for collection, the case will be tried by the court not inferior to that of a Metropolitan Magistrate or a Judicial Magistrate of the first class within whose local jurisdiction the branch of the bank where the payee or holder in due course, as the case may be, maintains the account is situated. Section 142(2)(b) states that if cheque presented for payment by payee or holder in due course otherwise through an account, the case will be tried by the court not inferior to that of a Metropolitan Magistrate or a Judicial Magistrate of the first class within whose local jurisdiction the branch of the drawee bank where the drawer of the cheque maintains the account is situated.
DashrathRupsinghRathod v. State of Maharashtrais a landmark judgment on Section 138 of Negotiable Instruments Act,1881. Here it was held that the objective of Parliament was to strengthen the use of cheques, distinct from other negotiable instruments, as mercantile tender and therefore it became essential for Section 138 to be freed from the requirement of proving mensrea [guilty state of mind]. This has been achieved by deeming the commission of an offence dehorsmensrea not only under Section 138 but also by virtue of the succeeding two sections. Section 139 carves out the presumption that the holder of a cheque received it for the discharge of any liability. Section 140 clarifies that it will not be available as a defence to the drawer that he had no reason to believe, when he issued the cheque, that it would be dishonoured.