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CRIMINAL LIABILITY UNDER NEGOTIABLE INSTRUMENTS ACT, 1881 BY: SANIL JOSE
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CRIMINAL LIABILITY UNDER NEGOTIABLE INSTRUMENTS ACT, 1881
AUTHORED BY: SANIL JOSE
Introduction:
The Negotiable Instruments Act, 1881 was basically introduced to define
the law relating to the various
aspects of the different negotiable instruments like Promissory Notes, Bills of Exchange and
Cheques. But the increasing use of these negotiable instruments necessitated the introduction of a number of amendments in the Negotiable Instruments
Act with the main aim of making the use
of the negotiable instruments easy. Amongst
all the amendments made in the Negotiable
Instruments Act the amendment responsible for the insertion of the Chapter XVII into the Act can be
considered to be the most important one as it
helped in bringing
about a revolutionary change with respect to the use of cheques.
Prior to this amendment the scope of misuse of the power to issue cheques was on a rise in spite of the
available civil remedy and the criminal remedy
under Sec 420 of the Indian Penal Code, and the cheques being a part and parcel of the commercial transactions
people started losing faith in the cheque system
at large. So there was a need to curb
down such misuse of the power to issue cheques
and the insertion of the Chapter
XVII by the Banking, Public Financial Institutions and Negotiable
Instruments Laws ( Amendment) Act, 1988 (66
of 1988) was blessing in disguise for
the payee, the people who were the worst affected
in case of such misuse. Chapter XVII
as a whole deals with Penalties in case of Dishonour of Certain Cheques for insufficiency of funds in the
accounts of the drawer of the cheques. This
chapter consists of a total of ten sections
amongst which Section 138 is of utmost importance. Section 138 speaks of
dishonour of cheques for insufficiency, etc. of funds in the account of the drawer. This section imposes criminal
liability on the person who is responsible for
issuing a cheque to another person for the fulfillment of his liability without having sufficient funds in his account. This section actually forces a person to think twice before issuing a cheque if he
has minimal funds in his accounts as because
such issuance of cheques may land the drawer of the cheque in jail even if he had no dishonest intention
to cheat the payee.
Understanding the concept of Dishonour
When a cheque drawn by the drawer is presented for payment with the
banker by the payee and the banker
refuses to satisfy the claim of the payee then such a process is known as dishonour of cheques. The dishonour of cheque or refusal to satisfy the claim of the payee by the banker may be due to
varied type of reasons like
insufficiency of funds in the drawers account, closure of the account of the drawer due to any legal reasons etc. This process of dishonour of cheque gives
a right to the person in whose name
the cheque is issued to take the issuer of the
cheque to the Court of Law for not being able to discharge his debt or
liability either due to insufficiency of funds or due to closure of account.
Section 138 of the Negotiable
Instruments Act, 1881
and its significance
Section 138 of the Negotiable Instruments Act is a pragmatic legislative
step to reach justice to the
aggrieved. This section was introduced
by the legislature to fill in the
void created by the denial of access to justice to the people who were victims of dishonour of cheques. This section basically provides for
Dishonur of cheques for insufficiency
etc., of funds in the account. As per
Sec 138, if under any circumstance,
the cheque issued by the drawer of the cheque is dishonored or it bounces back due to lack of funds in
the account of the drawer or for the reason that
it exceeds the arrangements made by the drawer with the bank, then the drawer of cheque is liable for such
dishonour. The significance of Section
138 can be proved from the fact that
it not only provides justice to the payee in case of dishonour of cheques but it also gives a chance to the honest
drawers to rectify their actions in
case of negligent behaviour so as to protect them from the clutches of law and to prevent their harassment
at the hands of law. It can be said
that Section 138 is a provision which clothes a civil
dispute with the garment of criminality.
Necessary ingredients which attract Section 138
Section 138 of the NI Act, 1881 was mainly enacted by the Legislature to
restore back the faith of the
mercantile community with respect to the mechanism of the cheques as a whole. This section was mainly enacted to protect
the payee from the dishonest
attitude of the drawer of the cheque.
But in order to attract liability
under Sec 138 certain provisions of the section
are to be complied with as specified in case of Anchor Capital of
India v. State of Gujarat[1]. These provisions are as follows: The cheque must be issued in favour of a payee
for the discharge either in full or
in part of a legally enforceable debt. Then
the same cheque must be presented for
payment within six months from the date of issue of the cheque or
the date of validity whichever is earlier and the cheque should be returned
back by the banker as unpaid as
because the funds available in the account of the drawer are insufficient for the debt to be paid. After receiving such an information from the banker with regards
to the insufficiency of funds, the payee must sent a notice intimating the same to the drawer within thirty days of receiving
such notice. Then it is the duty of
the drawer that within fifteen days of receiving
such notice from the payee it has a duty of taking any action to make good the loss suffered by the payee. But if under any circumstances the drawer fails to take any action with regards to
the dishonour of cheque then the drawer is considered
to be responsible for the loss suffered by the payee without even he having an intention to cheat the payee. So under Sec 138 the concept of criminal liability begins from the point where the
drawer even after receiving the notice from
the payee fails to take any action in
order to prevent such loss suffered by the
payee. So a detailed analysis of the Section 138 helps us to understand that the section does not make the drawer
criminally liable from the very starting point
when the cheque is dishonoured. It
gives a chance to the honest drawers
to prevent any type of harassment at
the hands of law by way of taking any action to make good the loss suffered by the payee after receiving a
notice from the payee intimating him
about the dishonour of the cheque. So
this means that the cause of action
with respect to the dishonour of a cheque necessary to make a person criminally liable arises only after the
drawer fails to take any action within fifteen
days of receipt of the notice from the payee informing him about the
dishonour of the cheque to make good
the loss suffered by him. In the case
of Raman B v. Shasun Chemicals
and Drugs Ltd.[2], it was held that the cause
of action for prosecution under the Section
138 does not arise from mere presentment or dishonour of the
cheque. It arises only when the
drawer defaults in paying up the cheque
amount due within fifteen days of receipt of the notice informing him about the dishonour of the cheque. The legislative mandate is that the Drawer should not be prosecuted immediately with
the dishonour of cheque but rather he should be given
a chance by the payee
to rectify his mistake.
Burden of Proof and
Criminal Liability Under Section 138 of the Negotiable Instruments Act, 1881
In cases of criminal liability under dishonour of cheques the burden of
proof lies on the accused who has to
prove with the help of the required evidence that the cheque issued were not for the discharge of the existing debt or
liability incurred by the drawer
during the due course of time. No burden of proof lies on the complainant to prove with the help of
evidence that the said cheque was issued with
respect to the discharge of any existing debt or liability incurred by the accused.
In complaints under Section 138, the Courts have to presume that the cheque or cheques issued were merely for
discharging the liability of the drawer and such a presumption made by the Court under section 118 and 139 is rebuttable.
The drawer is
considered to be criminally liable for dishonour of cheques when he fails to make payment of the amount
which is due to the payee within fifteen days
of receipt of notice from the payee intimating him regarding the
dishonour of cheque and demanding payment
of the said amount. In such a case it is considered that as the chance given to the
drawer to pay up the amount due after the
receipt of the notice was misused by the drawer and so this makes the Courts presume that even if there was no
dishonest intention on part of the drawer then
also he is considered to be
criminally liable for the dishonour of the cheque. Under
such circumstances the drawer may be subjected to imprisonment for a term
of two years or with fine which may exceed twice the amount of the cheque or with both. But assumption of criminal liability varies from case to case. The option
either to prosecute the accused or to lay a suit for recovery lies with the payee or the complainant. The payee is even entitled to pursue both
the civil as well as the criminal
remedies together. The initiation of
criminal proceedings does not bar
the payee from initiating the civil proceedings against the accused for
recovery of the amount due. In G.N.
Raju v. B.S. Jaiprakash & Anr.[3],
it was held that if the complainant
was successful in getting the fruits of the decree in civil court, it would be helpful only as a mitigating circumstance while imposing sentence under Section 138 of NI Act.
But such a
criminal liability will not be attached on the drawer if the cheque issued was not with respect to the
discharge of the legally enforceable debt on the part of the drawer,
if the cheque issued was a gift without any consideration,
if the cheque was returned by due to some technical problems like signature being not clear, or date not
mentioned properly, if the complaint made is
not within the time limit prescribed by Section 138 and 142 etc.
Conclusion
The spirit of the NI Act is that it is predominantly a civil law but to
ensure that the drawer discharges his
liability, a tint of criminal law has been added to it, which makes it quasi-criminal law. Failure on the part of the drawer to pay the cheque amount may expose him to penal
provision provided under the Act. A provision relating to ‘notice’ has been
added to protect the honest drawer and give
him a chance to rectify his omission.
This shows that the primary intent of the legislature was not to make it a criminal law. When the drawer fails to discharge his liability within fifteen days of
‘receipt of the notice’, it gives the cause of
action to the complainant to file the complaint.
Article Information
CRIMINAL LIABILITY UNDER NEGOTIABLE INSTRUMENTS ACT, 1881 BY: SANIL JOSE
Authors: SANIL JOSE
- Journal IJLRA
- ISSN 2582-6433
- Published 2023/08/25
- Issue 7
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International Journal for Legal Research and Analysis
- Abbreviation IJLRA
- ISSN 2582-6433
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