• Dishonour of cheques is a punishable offence under Section 138 for a period of one year or a fine. The imprisonment may extend to two years.
• The procedure for taking cognizance of an offence under Section 138 is present in Section 142. Whereas, Section 147 makes the offences under the Act compoundable.
• Section 139 sets the presumption in favour of the drawee that the cheque received by him is for the discharge of any debt or liability of the drawer. This discharge of debt can be in whole or in parts.
• Section 143 deals with the trial of cases under Section 138 which is summary proceedings notwithstanding anything contained in the Criminal Procedure Code, 1973(CrPC). Section 143 was added by the Negotiable Instruments (Amendment and Miscellaneous Provisions) Act, 2002. Section 143(3) specifically mentions that efforts must be taken to complete the trial proceedings within six months from the date of filing the complaint by the drawee.
• Section 140 states that the drawer cannot take this defence of not knowing that the cheque may be dishonoured on presentation.

Judgments on dishonour of cheques in India

On condition precedent that should be fulfilled before an offence under Section 138 is made out

MSR Leathers v. S. Palaniappan and Anrs (2012) is an important judgment laying down the condition of precedents that should be followed before an offence under Section 138 is made out. According to the case, the first condition is that a cheque must be presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier. However, the validity of the cheque was reduced to three months as per the 2011 Reserve Bank of India’s notification.

As per the second condition, the payee or the holder must make a demand for the payment of the said amount by giving a notice in writing. It should be presented to the drawer of the cheque within thirty days of the receipt of the information by them from the bank regarding the return of the cheque as unpaid.

The last condition is that the drawee of such cheque should have failed to make payment of the said amount of money to the payee or the holders, as the case may be, in the due course of the cheque within fifteen days of the receipt of the said notice.

On why cases are pending under the N.I Act

In Re: Expeditious trial of cases under Section 138 of the N.I. Act 1881 (2020) is the latest landmark case of the N.I Act. The Supreme Court through this case took a suo motocognizance over the pending cases of the N.I Act. The Court recognised that a lot of cases on dishonouring of cheques have been pending for the last 20 years at different levels. The Court ordered that certain steps should be taken to expedite the process of trial.

An Amicus Curiae or friend of the Court was appointed to prepare a report on the reasons pertaining to the delay in the summary trials under Section 138. On the basis of the preliminary report, it was found that out of the total number of criminal cases pending till the end of 2019 which was 2.31 crores, 35.16 lakh belongs to cases under Section 138.

The reasons for the delay are namely:

• A delay in serving the summons.
• Conversion of summary trials to summon trials without recording cogent reasons.
• Inconsistency in deciding whether the issuance of process under Section 202 of the CrPC requires preliminary inquiry on the part of the Magistrate.
• Offences committed as part of the same transaction are not jointly tried under Section 220 CrPC.

It was ordered that the Magistrate should conduct an inquiry on the receipt of complaints under Section 138. It will allow the Magistrate to arrive at sufficient grounds to proceed against the accused person if that person resides beyond the territorial jurisdiction of the Court.

The evidence of the witnesses on behalf of the complainant shall be permitted to be taken on the affidavit for the purpose of the conduct of inquiry under Section 202 of the CrPC. However, the Magistrate can restrict the inquiry to the examination of documents only in suitable cases.

There must be practice directions issued by the High Courts to the Magistrate to record reasons for converting summary trials to summon trials for the purpose of Section 138.

The practice directions must also be issued to treat the service of summons in one complaint to be a part of all complaints forming a part of the same transaction under Section 138.

For the sake of avoiding multiplicity of the proceedings, amendments must be made to the present Act to join different proceedings arising out of the same transaction into one that has taken place within the period of 12 months. The Court has also proposed the establishment of temporary Courts to expedite the trials under the N.I Act.

On offences under Section 138 to be person-specific

This is an important case on the point of understanding the law as laid down in Section 138 was dealt with in N Harihara Krishnan v.J. Thomas (2017). A cheque to pay for the sum of thirty-nine lakhs was dishonoured on the ground that the account on which the cheque was withdrawn has been closed. A notice for the same was sent to the respondent to pay the amount within 15 days from the receipt of the notice. However, neither the payment was made nor any response to the notice was communicated.

The issue in this case which also became a concern of the appeal was that the cheque was withdrawn against the person and not the company on whose behalf a person has signed the cheque. The person liable should be the company and not the individual who was represented in the capacity of the Director.

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