Frequently Asked Questions (FAQs) on Cheque Bounce/Dishonour in India
In the event of a Cheque bounce, action may be taken against the person whose cheque is being dishonoured under Section 138 of Negotiable Instrument Act and also the action against him may be taken against such person. Here, is the list of frequently asked questions on Cheque Dishonour case along with the appropriate replies
Question: Which court has jurisdiction to entertain a complaint of dishonor of Cheque explain the case law?
Answer:- The Hon’ble Supreme Court in the case of Dasrath Rupsingh Rathod (Crl. Appeal No. 2287 of 2009) decided that Territorial Jurisdiction for dishonor of cheques is under only to those Courts, within whose local jurisdiction the offence was committed, i.e., where the cheque is dishonored by the bank on which it is drawn. and,
If the cheque is presented for payment over the bank, the complaint is to be filed before the court where the drawer maintains his account.
Question:- Cognizance of offence under Section 142 of NI Act.
Answer:- It states that court shall not take cognizance of offence under Section 138 of NI Act unless a complaint is being made.
Question:- Whether condonation of delay is allowed?
Answer:- Condonation of delay is allowed on the facts and circumstances, if the judge seems that the delay is justified then the delay can be condoned.
Question:- Explain Summary Trial and Detailed Trial
Answer:- A Summary Trial is under Order 37 of Civil Procedure Code under which the lengthy procedure is not followed. A suit is filed and a leave to defend has to be filed within 10 days failing which the right to contest the suit is taken off from the defendant.
On the other hand proceedings under Section 138 of NI Act is proceeded with process which includes summoning to witness and pre-summoning evidences in this a reasonable time is given to the defendant.
Question:- Whether cheque can be dismissed on the ground that the cheque was issued as security.
Answer:- In HMT Watches Ltd vs M.A. Abida & Anr on 19 March, 2015 it was stated that Complaint under Section 138 shall not be dismissed by a High Court on the ground that the cheque was issued as security.
Question:- Transfer of cases under Section 142A of Negotiable Instrument Act.
Answer:- In Kirshna Texport & Capital Markets … vs Ila A Agrawal & Ors on 6 May, 2015 Under to Section 138, it is not necessary to issue individual notices to every director of the company for the dishonor of cheques.
- Such directors who are in charge of affairs of the Company and responsible for the affairs of the Company would be aware of the receipt of notice by the Company under Section 138.
Question:- Whether Company can be included as an accused if the Cheque is signed by the Director on behalf of the Company? What will happen if the accused Company is let off?
Answer:- In Aneeta Hada vs M/S Godfather Travels & Tours … on 27 April, 2012 it was held that the director could not have been held liable for the offence.
Also in Anil Gupta vs Star India Pvt. Ltd.& Anr on 7 July, 2014 it was held that for maintaining the prosecution under Section 141 of the Act, arranging of a company as an accused is imperative. And the Directors are vicariously liable and therefore they may be held liable only if Company is pleaded as accused.
REPLY:- Where not guilty under Section 138 – Provided further that where a person is nominated as a Director of a company by virtue of his holding any office or employment in the Central Government or State Government or a financial corporation owned or controlled by the Central Government or the State Government, as the case may be, he shall not be liable for prosecution under this Chapter.
Question: Which Legal Action can be taken in case of cheque bounce against the payee?
Answer: The payee of the cheque can file any or both of the following:
Criminal case:- Under Section 138 of Negotiable Instrument Act against the drawer of the cheque
Civil Recovery:-Civil suit for recovery under Order XXXVII (37) C.P.C
Note: Here, payee means the person
Question:- What is a cheque return memo?
Answer:- After a cheque is dishonoured, the banker issues a memo to the drawer mentioning; reason for dishonour of cheque, date of cheque dishonour, cheque number and date of issue.
This memo is called a cheque return memo and is a very important document when a legal notice is served to drawer.
Question:- If there are specified purposes for which post dated cheques can be issued. What are those purposes and provisions for post-dated cheques?
Answer:- Post dated cheques can be issued to secure a loan, security, discharge of a legally enforceable debt.
If the cheque was issued for discharge of a legally enforceable debt, it can be said to be dishonoured and hence it must be proven that the date on which the cheque was issued a legally enforceable debt or liability was due to be paid to the payee by the drawer.
If no such debt existed on the date of issue of cheque, and later a debts shows that it was a post dated cheque and was issued before the due date of payment. In these circumstances, cheque bounce case cannot be filed.
Question:-How many times a cheque can be presented after first dishonour?
Answer:- A cheque can be presented again even after it is dishonoured once, there is no restriction as how many time a cheque can be or has to be presented.
Question:- What could be the possible bail amount in a cheque bounce case?
Answer:- There is no fixed bail amount and it changes from case to case. There are certain criteria on which bail amount can be kept in mind.
- Amount of the cheque.
- Financial status of the drawer.
- Number of similar cases pending against the drawer.
Question: What is the procedure for filing of criminal case against the drawer of the cheque or what is the limitation period to initiate legal action?
Answer: Stage 1:- The payee has to send a legal notice to the drawer within 30 days, after receiving the return memo, payee can send notice himself or through lawyer
Stage 2:- Wait for 15 days from the date of receipt of demand notice for payment of the cheque.
Stage 3:- If drawer fails to make the payment within the said 15 days from the receipt of the legal notice, the payee can move to file a criminal complaint in the court.
Question: Cheque bounce is a criminal offence?
Answer: Yes, Cheque Bounce is a criminal offence.
Question: Cheque bounce is punishable offence?
Answer: Yes, cheque bounce is punishable offence. The drawer of the cheque can be punished with imprisonment for a term which may extend to two years, or with fine which may extend to twice the amount of the cheque, or with both.
Question: Can criminal and civil case be filed simultaneously?
Answer: Yes, both criminal and civil case can be filed simultaneously.
Question: If a cheque has been given only as a security and not as a repayment of a loan, is it still an offence under Section 138 of Negotiable Instruments Act for dishonour of cheque?
Answer: The Hon’ble Supreme Court of Indian observed that “the question whether a post-dated cheque is for “discharge of debt or liability” depends on the nature of the transaction. If on the date of the cheque liability or debt exists or the amount has become legally recoverable, the Section is attracted and not otherwise. Though the word “security” is used in the agreement but the moment the loan was disbursed and installments have fallen due on the date of the cheque as per the agreement, dishonour of such cheques would fall under Section 138 of the Act”.
Question: Whether a cheque issued from the account of guarantor as a security also would fall within the purview of Section 138 Of NI Act?
Answer: Security cheques are also within the purview of the Section 138 of Negotiable Instrument Act.
Question: Circumstances in which cheque bounce does not amount to an offence?
Answer: The following circumstances in a cheque bounce does not amount to an offence:
- If cheque is given as an advance.
- If cheque is given as a security.
- If there is disparity in amount stated in words and figures.
- If the cheque is mutilated.
- A cheque is issued to a charitable trust as a giftor donation.
Question: In what circumstances cheque bounce amounts to an offence?
Answer: When the cheque in question is dishonored due to insufficiency of funds, account closed, payment stopped by the drawer etc. If despite receiving of the legal notice the drawer of the cheque fails to make the payment within 15 days from the receipt of the notice.
Question: Can a Court close the proceedings of cheque bounce and discharge the accused on satisfaction that the cheque amount with assessed costs and interest is paid?
Answer: The Hon’ble Supreme Court of India in the matter of M/s Meters and Instruments Pvt. Ltd. Versus Kanchan Mehta set forth the guidelines that “where the cheque amount with interest and cost as assessed by the Court is paid by a specified date, the Court is entitled to close the proceedings in exercise of its powers under Section 143 of the Negotiable Instrument Act read with Section 258 Criminal Procedure Code.”
Question: If the accused is willing to deposit the cheque amount, in what way the proceedings for an offence under Section 138 of the Act be regulated?
Answer: The Supreme Court in M/S. Meters And Instruments Private Limited & Anr. V. Kanchan Mehta held that if the accused is ready to pay the entire cheque amount along with interest and costs as assessed by the Court, the Court is entitled to close the proceedings in exercise of its powers under Section 143 of the Act read with Section 258 Code of Criminal Procedure.
Question: What will be the status of the money received by the Complainant as compensation if the accused has served the jail term, in default of the compensation?
Answer: The Hon’ble Supreme Court observes that the offence with respect to dishonor of a cheque under Section 138 of NI Act is in the nature of a civil wrong which has been given criminal implications and the statutory remedy for cheque bounce under Negotiable Instrument Act are both punitive as well as compensatory in nature
In Kumaran versus State of Kerala & Anr the Hon’ble Supreme Court held that “so long as compensation has been directed to be paid under Section 357(3), Section 431, Section 70 IPC and Section 421(1), even though a default sentence has been suffered, yet, compensation would be recoverable in the manner provided under Section 421(1). This would, however, be without the necessity for recording any special reasons.”
Question: Can a single complaint be filed for dishonour of several cheques?
Answer: A person can file a single Complaint for dishonour of several cheques under Section 220 of Criminal Procedure Code, 1908
Question: Can a complaint under Section 138 of Negotiable Instrument Act once made be amended?
Answer: The Hon’ble High Court of Rajasthan in Oswal Finlease Private Limited Vs. State of Raj & Anr held that no person could be penalised for his bonafide mistake, and Complaint under Section 138 of the NI Act can be amended.
Question: Can complaint for cheque bounce be made if the cheque is issued in terms of a compromise entered between the parties?
Answer: The Hon’ble Supreme Court of India in Lalit Kumar Sharma And Anr vs State Of U.P. & Anr stated that, the cheque issued against the settlement will not create a new liability as it did not create a new liability, it cannot be considered to be issued towards payment of debt.
Question: Can a Director of a Company be held liable for dishonour of a Cheque even when at the time of commission of the offence the said Director was not in charge of of the company?
Answer: A Director of a Company cannot be held liable for dishonour of a Cheque if during the time of commission of the offence he was not in charge of and responsible for the conduct of the business of the company.
Question: Can a Director of a Company be held liable for dishonour of a Cheque?
Answer: The Hon’ble Supreme Court of India in S.M.S. Pharmaceuticals Ltd vs Neeta Bhalla & Anr 2007 held that:
“Section 141 of the Negotiable Instrument Act does not state that a Director of a Company shall automatically be vicariously liable for commission of an offence on behalf of the Company. What is necessary is that sufficient averments should be made to show that the person who is sought to be proceeded against on the premise of his being vicariously liable for commission of an offence by the Company must be incharge and shall also be responsible to the Company for the conduct of its business”.
Question: The signatory of a cheque is responsible for the Dishonour of the Cheque?
Answer: The Hon’ble Supreme Court of India in S.M.S. Pharmaceuticals Ltd vs Neeta Bhalla & Anr2007 held that “the Signatory of the Cheque which is dishonoured is clearly responsible for the incriminating act and will be covered under sub- section (2) of Section 141 of the Negotiable Instrument Act”,
Offences by companies: every person who, was in charge of, and was responsible to the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly. The proviso of this sub section also states that if the act was not in the knowledge of the person and he himself exercised due diligence to prevent the offence.
Question:- If the limitation period has lapsed then still can a complaint under Section 138 of the Negotiable Instrument Act be filed?
Answer:- Even after the lapse of limitation period a case under Negotiable Instruments Act can be filed an if the person justify the delay with a reasonable reason to the satisfaction of the court the judge may allow such application.
To sum up
Basis | Description |
Presentment
| the cheque has been presented to the bank within – a period of three months from the date on which it is drawn or – within the period of its validity, whichever is earlier |
Notice | the payee or the holder in due course of the cheque, – makes a demand for the payment of the said amount of money by giving a notice; in writing, to the drawer of the cheque, – within thirty days of the receipt of information by him from the bank regarding the return of the cheque as unpaid |
Failure of Drawer | the drawer of such cheque fails to make the payment of the said amount of money – to the payee or to the holder in due course of the cheque, – within fifteen days of the receipt of the said notice. |