For making out an
offence and for initiating prosecution. It is equally important for us
to examine legal issues settled by judgments of Supreme Court. These
judgements paved way for filling up deficiencies in the Act and also in some cases provided for clarifications wherever ambiguity existed.
1. Post dated cheque and its dishonour
Every
cheque shall be presumed to be drawn on the date mentioned on the face
of the cheque. A post dated cheque is a bill of exchange when it is
written or drawn and it is not payable on demand until the date shown on
the cheque. If post dated cheque is dishonored because of its
presentation before it became payable on demand, no offence u/s 138 can
be alleged. The controversy is settled by the decision of the supreme
court in Anil Kumar Sawhney Vs Gulshan Rai(1993) 4 SCC 424.
In this case Supreme Court held that a post dated cheque is a bill of
exchange and it becomes a cheque under the NI act only on the date which
is written on the said cheque and period of six months has to be
reckoned from the date of the cheque.
2. Jurisdiction:
Most
often people are confused about the place where criminal compliant can
be filed under the NI Act, as the Act is silent on this matter. Since
the Criminal courts are approached, the issue needs to be examined from
the point of view of the
Criminal Procedure Code. Section 177 of CrPC provides that every offence
shall ordinarily be inquired into and tried by a Court within whose
local jurisdiction it was committed. Section 178
provides that offence may be tried at by a court having jurisdiction
over any of the local areas where offence is committed. It is possible
that an offence may be committed in
several local areas or partly in one area and partly in another area.
It is also possible that some times offence may consist of several acts
done in different areas In all the above situations, the court having jurisdiction over any of such local areas may try the offence.
The judgment of supreme court In K Bhaskaran V sankaran Vaidyaa Balan and Anr(1999) 7 SCC 510 dealt with this issue elaborately. The
Hon’ble Supreme court opined that offence can be completed only with
concatenation of a number of acts, namely, drawing of cheque,
presentation of cheque, returning of the cheque by the bank, notice by
payee and failure of drawer of cheque within 15 days of receipt of
notice. Any one of the courts under whose jurisdiction the above acts
have taken place can try the offence. In other words complainant can
file compliant in any one of the courts where the cause of arises or
acts have been committed.
In Harman Electronics(P) Ltd and Anr Vs National Panasonic India Ltd(2009)1 comp LJ 29 (SC)
the Hon’ble supreme court had the occasion to examine the issue of
jurisdiction again. In this case the appellant is a resident of Chandigarh issued a cheque which was dishonored. The cheque was issued at Chandigarh where the complainant had a branch and was presented at Chandigarh. Notice demanding payment however was issued by the complainant from its Head office at Delhi to the accsued’s office at Chandigarh. On failure to respond to the notice, a complaint was filed in Delhi. Both lower court and High court have placed reliance on K Bhaskaran V sankaran Vaidyaa Balan and Anr case and held that Delhi court also has jurisdiction. The Appellant/Respondent in appeal contended that Chandigarh
court had jurisdiction to try the offence but his appeal was dismissed.
But in appeal, the Supreme court held that a court derives jurisdiction
when a cause of action arises. Jurisdiction can not be conferred for
any act of omission or commission on the part of the accused. Issuance
of notice would not give rise to cause of action but communication of
the notice would and therefore Delhi High court would not have
jurisdiction and it directed for transfer of the case pending in Delhi to Chandigarh court.
3. Successive presentation of cheque and Cause of action:
Usually
when a cheque is dishonored, the drawer is informed and some times he
advises to present the cheque again as in the mean time he must have
arranged for funds or some credits have come into his accounts just
after dishonour or made arrangement with his bankers. What is the risk is such cases? In Sadanandan Bhadrant Vs. Madhavan Sunil Kumar AIR 1998 SC 3043
Supreme
court ruled that a cheque can be presented any number of times during
its validity period by the payee. However on each presentation of the
cheque and its dishonour, a fresh right accrues in his favour and not
cause of action to file complaint. Once he chooses to give a notice
u/s138(b) and the drawer fails to pay within the stipulated time, the
cause of action for filing the complaint will arise immediately on the
following day of expiry of 15 days notice period and remains alive till
30 days. Complaint has to be filed before expiry of 30 days from the
date of expiry of notice period.
If
a complaint is filed before expiry of 15 days notice period, it becomes
a premature complaint and it will be dismissed. If complaint is filed
after expiry of 30 days complaint will be dismissed on the ground of
limitation. So one has to be clear about cause of action and filing of
complaint before the limitation period runs out
4. Presumption as to Legally enforceable debt.
Section 139 says that it shall be presumed, unless the Contrary is proved, that the holder of a cheque, received the Cheque for discharge, in whole or in part, or any debt or other liability. Supreme court reiterated the contents of section 139 in the case of KN Bena V Muniyappan & Another, AIR 2001 SC 2895 that the onus is on the accused to prove by cogent evidence that there was no debt or liability.
5. Instructions in Bank’s memo:
The payee bank while returning the cheque gives reason for dishnour. Most often it mentions reasons
such as “ exceeds the arrangement” or “refer to drawer”. Some times
“stop payment “ instruction is also ticked. All these reasons of
dishonour will lead to a presumption of dishonour of cheque. The supreme
court in the case of Modi Cements Ltd Vs M/s V Kuchikumar Nandi AIR SC 1998 1057
ruled that once the cheque is issued by the drawer, a presumption under
S. 139 in favour of holder must follow and merely because the drawer
issues a notice to the drawee or to the Bank for stoppage of the
payment, it will not preclude an action under Section 138 by the drawee or the holder of a cheque in due course. This judgment overruled it previous Judgment in M/s.
Electronics Trade and Technology Development Corpn. Ltd., Secunderabad
Vs M/s. Indian Technologists and Engineers (Electronics) Pvt. Ltd. and
another. Supreme court reiterated the same views in MMTC Ltd & Anr Vs. Ms. Medchal Chemicals & pharma(P) Ltd. AIR 2002 SC 182.
6. Notice and its requirements:
The NI Act is silent about the manner of service of notice. However, sending by notice by registered post is desirable as it will be easier to prove service of notice. In SIL Import, M/s. USA v. M/s. Exim Aides Silk Exporters" AIR 1999 SUPREME COURT 1609, the Supreme court ruled that
if notice envisaged in cl. (b) of the proviso to S. 138 was transmitted
by Fax, it would be a compliance with the legal requirement therefore
notice demanding payment can be sent by Fax is also equally acceptable.
If notice is sent
by the payee at the correct address of the drawer, it would be deemed
to be a proper service of notice. Some times notice issued is refused or
unclaimed by the addressee. In
situations such as this, it is well settled that a notice refused to be
accepted by the addresee can be presumed to have been served on him. The decided cases are Harcharan Singh Vs Shivrani AIR 1981 SC 1284 Jagdish Singh v. Natthu Singh AIR 1992 SC 1604. Supreme court held
that presumption of issuance of notice and receipt can be inferred in
such cases. Courts should not adopt an interpretation which will help
the dishonest evader and thereby defeats the very purpose of the Act. If
Acknowledgment card is not received, how the period for filing
complaint will be decided? In cases such as this, on expiry of 45 days period from the date of notice, action can be taken for filing a complaint.
It must be remembered that the notice issued must demand payment of cheque
amount in categorical terms and demand should not be vague. Notice can
not be an omnibus demand. The supreme court in the case of Suman Sethi Vs Ajay K Churiwala & Anr AIR 2000 SC 828 ruled
that the said amount of money occurring in clause (b) and (c) of
section 138 refers to the words ‘payment of any amount of money’ stated
in the main section 138. It implies that the demand has to be made for
the amount of the cheque dishonored.
The object of the notice is to give another chance to the drawer of the cheque to make up for his default.
7. Presumption as to consideration:
In the case of AV Murthy V B S Nagabasavanna 2002 Cr LJ 1449 SC held that dismissal of a complaint at the threshold on the ground that the debt is time barred is erroneous and not proper as consideration is presumed u/s 118 of NI act.
8. Dishonor of cheques by companies under SICA:
Supreme court in the case of Kusum Ingots & alloys Ltd Vs Pennar patterson securities Ltd & ors AIR 2000 SC 954 held
that criminal prosecution for dishonour cheques is neither a proceeding
for recovery of money nor for enforcement of a security. Prosecution
against the Directors of Sick companies would not be suspended merely on
the ground that proceedings against sick companies are suspended u/s 22
of SICA.
9. Cheque dishnour and Directors liability:
Many cases have been filed by Directors u/s 482 of Code
of Criminal procedure, for quashing of complaints. If a complaint is
filed against a company and its directors, presumption will be drawn as
per Section141 of the NI Act against them unless they rebut this
presumption. Normally it is the Managing Director who looks after the
day to day affairs is supposed to be in the knowledge of the affairs of
the company on day to day basis. Once a notice is served on all
directors, the burden is on them to show that they are not liable to be
convicted or it will be a good defense, if they can show
that at the relevant time they were not in-charge of the affairs of the
company. Same is the case with the partnership firm.
Keeping in view the risk, Nominee Directors
of Central or State government or a Financial Corporation owned or
controlled by the Central Government or the State Government, as the
case may be, are exempted from prosecution under NI Act.
10. Compounding of offence:
Section 147
provides that notwithstanding anything contained in the Code of Criminal
Procedure, 1973, (2 of 1974.) every offence punishable under NI Act
shall be compoundable. Before introduction of section 147 divergent
views were expressed by various high courts including Supreme Court.
Critical analysis of judgment of Supreme court in Rajneesh Aggarwal Vs Amit J Bhalla (2001)1SCJ 13leads
one to conclude that once the offence is committed, any payment made
subsequent thereto will not absolve the accused of the liability.
However, a joint compromise petition filed may be considered as a
mitigating factor while awarding punishment for offence. Criminal
proceedings can not be quashed simply because accused made a deposit of
cheque amount in the court. When offence u/s 307 is compounded u/s 320,
why an offence u/s 138 can not be compounded especially when both the
parties file a compromise petition.
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