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CRITICAL ANALYSIS OF SECTION 138 OF NEGOTIABLE INSTRUMENTS ACT, 1881 BY: MANISHA ADVANI
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CRITICAL ANALYSIS
OF SECTION 138 OF NEGOTIABLE INSTRUMENTS ACT, 1881
AUTHORED BY: MANISHA ADVANI
L.L.M II- SEMESTER
IV
(2022-23)
MODERN LAW COLLEGE GANESHKHIND,
PUNE
ABSTRACT
Promissory notes, promissory notes and checks have long been used as negotiable instruments for economic transactions as a way of transferring money. Over
time, the development of the economic
sector, specifically the banking sector check has become the most used
negotiable instrument, but there is
always a possibility that comes with it, the probability of insufficient amount in the account at the time of
issuance of the check. Sections 138 to 142 have been inserted in the Negotiable Instruments Act to protect the
interests of the payee and to ensure justice and this
research paper focuses
on the development of the objective, nature
and current developments regarding the
decriminalization of check dishonor sections in the Negotiable Instruments Act.[1]
KEYWORDS:
Dishonor of Cheque,
Negotiable Instruments Act, S. 138, Jurisdiction, Decriminalization.
INTRODUCTION
The “Negotiable Instruments Act” was drafted
in the year 1866 and came into existence in the year 1881. In
1988 which is more than a hundred years Chapter XVII in which Sections 138 to 142 were added to the Act. Section
138 of the Act basically lays down the penalty for the offense of dishonor of a cheque. A check can be described as
"a negotiable instrument drawn on a specified
banker and not otherwise shown to
be payable on demand". Chapter 2 of Negotiable Instruments Act Section 6 defines check and the definition clearly
states that it also includes "electronic image of cut
check and check in electronic form". Criminal proceedings against the accused on punishment in case
of dishonor of check was not present earlier, it is a recent addition but earlier only civil and alternative dispute
resolution techniques where available
to the check payee and now both civil and criminal remedies are available to
the payee. In case of civil remedy,
the payee can file a civil suit to recover
damages and in the case of a criminal
remedy, it is available
under Section 138 of the Negotiable Instruments Act, which does
not exclude the filing of a civil action.
I.
OBJECTIVES OF SECTION 138
In Modi Cement Limited v. kuchil Kumar Nandi[2],
the Hon'ble Court stated that the main objective
of “Section 138 of the Negotiable Instruments Act is to promote efficiency in banking operations and to ensure all
credibility in dealing
through cheques.
The law relating to negotiable instruments is the laws of the commercial world, which are enacted especially
to facilitate the operations of trade and commerce by providing for the
sanctification of instruments of credit which would be considered convertible into money and easily passable
from one to another."
In
Dalmia Cement Bharat Limited Vs M/S. Galaxy traders and Agencies Limited and others[3], the Hon'ble Court observed the objective and rational background behind the enactment of Section 138. The Hon'ble
Court also stated that “Negotiable instruments are in fact credit instruments which are exchangeable on account of
legality of negotiation and are easily
transferable from from one person to another. In order to achieve the objects
of the Act, the Legislature in its
wisdom has thought it proper to make such provisions in the Act for granting such privileges on commercial
instruments covered by it and lays down specific penalties and procedure in the event that the obligations under the instruments are not fulfilled.”
In
the case of D.Vinod Shivappa vs Nanda valliappa[4]
said that "Section 138 of the Negotiable Instruments Act is not meant to protect unscrupulous drawers who have no intention
of honoring the checks drawn by them, as it is part of their modus
operandi to punish the unscrupulous person".
II.
CONDITIONS TO COMMIT THE OFFENCE UNDER SECTION 138 OF NI ACT,
1881
Section 13 of the Negotiable Securities Act defines "negotiable
security" which defines it as "a
promissory note, promissory note or check payable to order or bearer".
"Which basically means
that 'it is a kind of document
which guarantees to the bearer
a sum of money which
will be payable on demand or
at any time in the future.'" Section 138 of this Act is essentially a penal provision which prescribes penalties
for dishonor of a cheque. Section by itself it states certain circumstances
which make contempt of control
a crime and the ingredients are
1. "First, a person should issue a check as drawer, and a check that is issued for the payment
of money to another person exempting himself from any liability"
2. The check should be presented to the drawee's
bank and the check is returned unpaid
by the bank due to insufficient or insufficient funds or the amount
exceeds the "amount to be paid from
this account by agreement with the bank" .
3. "The
check should be presented to the bank within 6 months from the date of issue or
its validity period, whichever is earlier."
4. If the check
is dishonored by the bank, the bank will immediately issue a "Check Return Notice" to the payee
5. Then the
owner of the check who is the payee sends a call for the check to be issued
within 30 days of receiving the notice
of return of the unpaid check.
6. The exhibitor must make payment within 15 days of receiving this notice, and if payment
is not made within this period, the recipient may take legal action within 30 days after the 15 days have passed.
The main condition is that if the drawer
is able to pay the money within
15 days, there
will be no offence. According to Section 138 of the Act, he will be punished only if he is unable to pay the debt within 15 days,[5] and he
will be punished with a penalty under this
section.
In
the case of Yogendra Pratap Singh vs Savitri Pandey[6]
Hon'ble Supreme Court observed that
“there should be no cause of action till the lapse of 15 days, therefore the
court is barred from taking
cognizance of the complaint filed before the court. expiry In the case of Shankar Finance Investment Vs. State of Andhra
Pradesh and another court held that "Section 142 of the Negotiable Instruments Act requires a complaint to be made
by the payee or holder within the
due date of inspection if the Payee is a natural person against whom the
complaint can be made and if the
payment is in person registered in the company, must be represented by a natural
person."
III.
LIABILITIES
In
case of dishonor of check liabilities or penalties there are two types of liabilities one civil and other criminal.
There is a remedy for offenses under both the
Civil Procedure Code and Indian Penal Code. “Section 138 of the Negotiable Instruments Act imposes a penalty in case
of civil liability which is twice the amount
of the dishonored check and if the drawer files a suit under Code 37 of Civil Procedure
1908 for recovery of the amount and the judgment is in favor of the
drawer then the drawer shall pay the amount ordered by the court.
In
case of criminal liability Section 138 of the Act provides for imprisonment which may extend to 2 years or fine which
may extend to double the check amount or both.
The offense is bailable compoundable and non-cognizable and the drawer of the check will be prosecuted under section 417
which is punishable for cheating and 420 of the Indian Penal Code.
A “Judicial Magistrate First Class” or “Metropolitan Magistrate” may take cognizance of the case. Section 29 of the
Code of Criminal Procedure states that a Judicial
Magistrate of the First Class cannot impose a fine exceeding 10,000 hence Section 143 (1) of the Negotiable Instruments Act was inserted
by Amendment Act No. 55 of the year 2002 which ultimately
allowed Magistrates to exceed their prescribed
limits under the Code. It provided freedom to impose a penalty which
could be double the amount of the
cheque.
IV.
JURISDICTION
Regarding
the appropriate jurisdiction to file a criminal complaint under the section 138 of the NI Act 1881 the act
does not define the matter regarding the appropriate
jurisdiction as the Criminal Court has the power to take cognizance the issue needed to be solved with the help of
Criminal Procedure Code 1973 section 177 and 178(d).
In
the case of K.Bhaskaran Vs. Sankaran Vaidhyan Balan and Anr [7]
the Hon’ble court in paragraph
12 of the judgment observed
that according to section 177 of the Criminal Procedure Code "every offence shall ordinarily be inquired into and tried
in a court within whose jurisdiction
it was committed.”
Post K. Bhaskaran Judgement it was observed that the law allowed the complainant to abuse and misuse the the law which can lead to hard ship for the drawer.
This judgement conferred the payee with a unreasonable and arbitrary power to confer
jurisdiction on places according to his convenience. “which can lead to
harassment as the payee has no concern or relation with a distance
places where the cheque was issued a which
had no link to the transaction or drawer.”[8]
After this case in the year 2014 regarding the jurisdiction in the case
of the Dashrath RoopSingh Rathod vs State of Maharashtra and Anr[9] The Honorable Supreme Court held that “there is a discernibly defined
difference between the commission of an offence
and cognizance of the offence.
Cognizance leads to cause of action.
For Section 138 complaints the cause of action arises
only when the drawer fails
to pay the defaulted payment .The Complaints can be filed only in the
courts within whose jurisdiction the check is presented for encashment” and the judgement also stated that this will only be applicable in a
retrospective effect, the Hon’ble
Supreme Court also stated that “only
those cases where after completing the summoning
and the appearance of the alleged
accused the recording of the evidence
has commenced as respondent has not
been properly served shall be returned to the complainant to file it in the mentioned
under the section
145(2) of the Negotiable Instrument
Act the proceeding will carry on at that place
and other complaints which should also include
those where the accused or the proper court .”[10]
There has been amendment in the act and as per the Negotiable Instruments(Amendment) Act 2015 “a
complaint can be filed under the section 138 of Negotiable Instrument Act for dishonour of cheque at a court
within whose local jurisdiction the
branch of the bank is located and the payee
or the holder maintains an account.”
V.
NATURE
OF SECTION 138
In P mohanraj vs M/S. Shah Brothers Ispat
Pvt. Ltd in 2021,[11] a recent judgment
in which a bench comprising Rohinton Dali, Nariman
and B.R. Gavai.
In a case dealing with the issue of weather moratorium
under Section 14 of the IBC blocks proceedings
under Section 138 of the Negotiable Instruments Act against a corporate
debtor, they said that the
proceedings under Section 138 of the Negotiable Instruments Act can be termed
as "Civil Sheep" in the "Criminal Wolf".
Clothing'
and in this case learned 'Additional Attorney General' Shri Aman Lekhi, who presented for the Union of
India, comprehensively went through
the sections of the Negotiable
Instruments Act and contended that "proceedings under section 138 can only be described as
criminal proceedings and not as quasi-criminal
proceedings', but here the court rejected that argument, calling
it a misnomer.
The provision of Section 138 of the Act
establishes the above-mentioned punishment for dishonoring a check and also follows the
criminal code dealing with this type of cases,
which describes the quasi-criminal nature of the section.
(A)
FOLLOWING THE CRIMINAL PROCEDURE
CODE
1.
Compounding Of Offences
An offense committed under Section 138 can be made compoundable under Sec.147 of the Negotiable Instruments Act. It states
that "notwithstanding anything
contained in the Code of Criminal Procedure, 1973 (2 of 1974),
every offense punishable under this Act shall be compoundable".
2.
Trying The Offences
Summarily
Section
143 empowers a negotiable instrument magistrate to try cases briefly only if the Magistrate is of opinion
that the alleged
accused shall be liable to imprisonment for a term not
exceeding one year and a fine not exceeding Rs.5000 and in all cases under this
section efforts shall be made to
complete the trail within 6 months of the filing of the complaint. That “the offense under
Section 138 is person-specific and therefore cognizable against the person.[12]
3.
Applicability Of Section 319 CrPC
Article 319(1) of the Criminal
Code states that "If, during the investigation or trial of a crime,
the evidence shows that a person who is not accused has committed a crime for
which he could be tried together with
the accused, the court may to intervene for an offense which she appears to have committed." This rule also applies to an offense
which is committed under Section 138.
The case of N. Harihara Krishnan v. J. Thomas, which has so far been held to have been charged,
is to be taken in the same manner as the previously accused was first taken cognizance of.'
When a person is convicted or sentenced in a criminal
proceeding under Section
138 of the NI Act, he cannot take it as an alternative to a civil
proceeding, the accused will be held liable for both civil and criminal liability, one cannot acquit the other.
VI.
DECRMINALIZATION OF SECTION 138
OF NI ACT, 1881
In 2020, the Minister of Finance published a decree on the
"decriminalization of small offices to improve business
sentiment and unblock
court processes". For receiving suggestions and comments from interested parties
regarding the decriminalization of a number
of offences, which
also include the offense under Section 138 of the Negotiable Instruments Act, 1881.
There are basically five reasons that made this proposal “instill
confidence among investors; maintaining economic growth, national
security and the public interest
as paramount; evaluate non-compliance with respect to
mens rea as opposed to negligence or inadvertent omission; and the habitual
nature of non-compliance.”[13]
The main objective
of this government proposal is to facilitate the process of doing business
and encourage investment, but in my opinion the decriminalization of
Section 138 will not achieve this objective, the intention and main objective of this section
was to create detergents act and discourage people from not
honoring their commitment through check payment. Checks are now very much used in day to day economic and banking
transactions and due to the penal
provision in Section 138 the holder of the check feels relieved that he has a
chance to recover payment in case of
dishonor of that cheque, but by criminalizing this collateral, the certainty and security is lost and the trust
that people have in case of transactions through check, it will
have an adverse effect which will eventually affect the economy.
Another objective
of this proposal was to unblock the judicial system through the decriminalization
process, but this objective will also not be met because there are already many pending cases in the magistrate
courts and disposal of cases is also very late and with decriminalization the problem will increase as the burden and
burden which faced by the criminal courts,
he will move to the civil courts because as the holder
of the check he will have no remedy in the criminal
court, he will only be left
with the option of a recovery
suit.
CONCLUSION
In the case of P Mohanraj vs M/S. Shah Brothers Ispat Pvt. Ltd,[14]
the Hon’ble court observed that “the
main object of the provisions of Section 138 of the NI Act is not to punish the culprit but to compensate the victim”. there have been many landmark
judgments over time which have brought about significant
developments regarding the objective of the section and the jurisdiction over the offense committed under the section.
The legislature has begun to propose decriminalizing the act, but it is still a crime.
*****
[1] Author is a student
at KIIT School of Law, Bhubaneswar, India.
[2] AIR 1998 SC 1057
[4] (2006) 6 SCC 456
[6] (2008) 8 SCC
536
[8] Agrima
Sharma , Jasmine Malik and Sumit Roy , Section
138 of Negotiable Instrument Act 1881- An In depth Analysis, mondaq (Oct 9 2015),
https://www.mondaq.com/india/trials-appeals- compensation/433334/section138-negotiable-instruments-act-1881--an-in-depth-analysis
[9] (2014) 9 SCC 129
[10] Dashrath RupSingh
Rathod vs State of Maharashtra and Anr (2014)
9 SCC 129
[11] MANU/SC/0132/2021
[12] (2018) 13 SCC 663
[13] Rohan Tiwari , Decriminalization of Dishonor of Cheques -A step
Backwards, BAR AND BENCH ( July 1 2020,
8.59 AM),https://www.barandbench.com/columns/decriminalization-of-dishonor-of-cheques-a-
stepbackwards
[14] MANU/SC/0132/2021
Article Information
CRITICAL ANALYSIS OF SECTION 138 OF NEGOTIABLE INSTRUMENTS ACT, 1881 BY: MANISHA ADVANI
Authors: MANISHA ADVANI
- Journal IJLRA
- ISSN 2582-6433
- Published 2023/06/05
- Volume 2
- Issue 7
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International Journal for Legal Research and Analysis
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