Dishonour of Cheques- Law and practice

Law relating to Dishonour of Cheques is gaining more significance in the recent times, with the ever increasing usage of Negotiable instruments both at the individual and the corporate level. Section 138 of the Negotiable Instruments Act 1881, deals with law relating to Dishonour of Cheques.

Issue of cheque:

According to Section 138 of the N.I Act, a precondition to be satisfied is that, the cheque must be issued in pursuance of discharge of a debt. Such discharge may be whole or in part, but cheques issued for any other purpose will not form part of Section 138

Presentation of the cheque:

The said cheque must be presented in the bank within 6 (Six months) from the date on which  it was drawn or within the date of validity of the cheque, whichever is earlier. Now RBI has reduced the validity period of Cheques to 3 months.

Issue of notice to the drawer:

Once the the bank intimates the payee on the cheque bounce, the payee shall Send a notice in writing to the borrower intimating the same within 30 days from the receipt of the communication from the bnotic For constituting an offence under the Act, the defaulter should have failed to pay the sum within 15 days after the receipt of such notice.

Upon non payment:

A criminal Complaint should be made within 1 month from the date of expiry of the said 15 days before Metropolitan Magistrate or Judicial Magistrate not below the rank of JM-1.

Nature of the offence : Compoundable

Some judicial pronouncements:

1. Pendency of Criminal matter would not be an impediment to proceed with civil suit -State of Rajasthan vs. Kalyan Sundaram Cement Industries Ltd (1996) 86 CC 433

2. Prosecution under Section 420 of IPC and Section 138 of the Negotiate Instruments Act is not hit by Article 20(2) of the Constitution. Prosecution under Section 138 is not a constitutional bar to prosecute under section 420 of IPC.-    Anto (KS) v. UOI (1993) 76 CC 105 (ker), Trisuns Chemical Industry V. Rajesh Agarwal (1999) 8 SCC 686, Meenakshi Sundharam Textile Limited V. Gokul Chand Rakhabchand (2002) (2) Crimes 432, Rajat Mittal v. State (2002) 108 cc 55 (Del)

3. There are 5 facts to be considered for Jurisdiction under section 138 - Drawing of Cheque / Presentation of Cheque / Returning of Cheque unpaid / Giving notice in writing / failure to make payment. Complainant can choose anyone of the 5 places for invoking Jurisdiction - Bhaskaran K vs. Sankaran Vaidhyan Balance 1994 (4) Crimes 212 (SC), ( 2000) 99 CC 268 (SC).

However the above Judgment was overruled recently on 01.08.2014, by the Supreme court in Dasrath Rupsing rathod Vs. State of maharashtra and another where the Jurisdiction under Section 138 of the NI Act is conferred only to place where the cause of action arises. Therefore the place of the bank where the Cheque is presented and the same is dishonored is the place where the complaint has to be filed.