SUCCESSFULLY SAILING OUT FROM A CHEQUE BOUNCE CASE

“VITAL TOOLS AND TECHNIQUES”

By Devika Mathur

---

INTRODUCTION

A “Cheque” is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand and it includes the electronic image of a truncated cheque and a cheque in the electronic form. This is the legal definition of Cheque as provided under Section 6 of the parent act of the Negotiable Instrument Act. Black’s Law Dictionary defines cheque as a draft drawn upon a bank and payable on demand signed by the maker or drawer, containing an unconditional promise to pay a sum certain in money to the order of the payee.[1]

Off lately the cheque was considered as a worthless piece of paper and the banking system was also not very effective as the dishonour of cheques were primarily considered as a civil liability and thanks to all this cons the business entities started losing faith on using the Cheque as a mode of business transaction.

This was the time the legislators intended to add a criminal colour to the offence of dishonour of cheque and gradually there were amendments by the parliament and judgements by the Hon’ble Supreme Court of India that gave a stringent and a newly defined act so in order to make the Banking system effective and to inculcate the credibility in transacting business on negotiable instruments to prevent issuance of dishonest cheques by the drawer.

Though offence is criminal in nature but has a difference in nature as compared to Indian Penal Code, The Hon’ble Supreme Court of India has held in the case of Kaushalya Devi Massand v Roopkishore Khore [2]that “offence under Section 138 is only given criminal overtones but can’t be equated with the other offences which are defined under IPC. Therefore, it could be said that the offence under Section 138 is only a civil wrong just defined in the Act as criminal one”.

DISHONOUR OF A CHEQUE: A CRIME

A cheque is commonly used for all sorts of transaction. Cheques are issued for the reason of securing proof of payment. Most common way of using cheque are the post-dated cheques (PDC) that are being used for business transactions which provide a certain accommodation to the drawer of the cheque. Therefore, it becomes necessary to ensure that the drawer of the cheque does not abuse the accommodation given to him. The excessive use of cheques during business or any other kind of transaction has a high risk of dishonour of the cheque, which is now a penal offence. Mostly vast majority of cheques are processed and cleared by banks on daily basis but there are many instances where the cheques are defaulted and the drawee is left with no other option but to file a complaint under section 138 of the Negotiable & Instrument Act.

Under the provision of Sec 138 of NI Act, the complainant has to ensure some prerequisites for the filing the complaint under the said section of 138 NI Act. Some of the vitals to be considered by the complaint to bring the case under the ambit of 138 Negotiable Instrument Act are that there has to be a valid cheque being issued against the legally admitted liability and the drawee of the cheque presented the cheque within the period of six months or during the life of the cheque and finally the cheque got dishonoured and returned along with the return memo which bears the actual reason for dishonour of the cheque. The next step is for the drawee to send a legal notice of demand to the drawer within the stipulated time period and the drawer shall be liable for conviction if the demand is not met within 15 days of the receipt of notice but this is without prejudice to any other provision of the Act.

Though section 138, N.I. Act penalizes the dishonour of a cheque, however, dishonour of a cheque is, by itself, not an offence under section 138 of the N.I. Act. To become an offence, the following ingredients have to be fulfilled:

1. Drawing of the cheque.

2. Presentation of the cheque to the bank.

3. Return of the cheque unpaid by the drawee bank.

4. Issuance of notice in writing to the drawer of the cheque demanding payment of the cheque amount.

5. Failure of the drawer to make the payment within 15 days of receipt of the notice.

The Indian Courts are overwhelmed with cheque bounce cases filed under Section 138 of the Negotiable Instruments Act, 1881. Although most of the pending cases are genuine and seek justice, but rest of the complaints are lodged solely with the intent of extorting and harassing a persons which result in the loss of business entity and goodwill.

DEFENCES:

This brings us to the most important part of the article where we will deal with the defences the accused can successfully resort to in order to get acquittal from the court of law. The offence under the section 138 of the Negotiable Instrument Act, is a strict liability offence, which means after the court has considered the entire material on record filed by the complainant, the presumption would operate against the respondent (original accused) for an alleged offence of dishonour of cheque under Section 138 of the said Act[3]. The Gujarat High Court in Geekay Exim (India) Ltd. v. State of Gujarat (1998)held that though the element of mens rea is not important under Section 138, such element must be presumed to exist at the instance of every case. This means that the question whether mens rea should be considered or not while adjudicating, varies from case to case depending on their circumstances.[4]In short, Section 138 is freed from the requirement of proving mens rea [guilty state of mind].The onus is upon the Accused to rebuttal to such offences under section 139 of Negotiable Instrument Act. The complainant has to prove that the cheque was drawn by the accused upon his account in the Bank for a certain sum of money on a certain date which returned dishonoured for non-payment on account of any reason i.e. insufficient funds etc., and the accused has failed to honour the legally admitted liability to pay the said amount, despite service of demand notice in writing upon him, within the stipulated period of time. Once the primary facts as above, are averred and proved by the complainant in such case as required by the penal provision in Section 138 of the Act all guns starts blazing on the accused. But yet there exist some respites for the accused.

There are several effective tools and technique one can put to use to bring the effective and desired result in the form of Acquittal from the accused side. Some of techniques are mentioned herein:

TECHNICAL

Under this set of defence the accused can successfully take the recourse to the Technical grounds. Some of the technical grounds can be:

i. JURISDICTION:

This is a very common ground taken, that the court does not have the power to adjudicate the matter as the matter lies under the jurisdiction of another court. While settling the dispute of jurisdiction the Hon’ble Apex court in Dashrath Rupsingh Rathod v. State of Maharashtra[5] “Court had held that, the territorial jurisdiction is restricted only to the court within whose local jurisdiction the offence was committed, which is where the cheque is dishonoured by the bank on which it is drawn” But soon after the Negotiable Instruments (Amendment) Act, 2015 was passed and amendment has come into force from June 15, 2015 which has brought to rest the jurisdictional issue in a cheque bounce case. The changes brought by the amendment act was that Section 142 has been amended to include that the cheque bounce matter is to be filed within court within whose jurisdiction the branch within whose jurisdiction of the payee or holder in due course, cheque is delivered for collection through an account. If the cheque is presented for payment, by the payee or holder in due course or otherwise through an account, the branch of the drawee bank where the drawer maintains the account, then the case would be filed in same jurisdiction.

ii. LIMITATION:

The second vital tool, which comes to the rescue, is the Law of Limitation as prescribed under the Negotiable Instrument Act. Sec. 142, N.I. Act has prescribed an outer limit of one month for filing of a complaint from the date the cause of action rises. Another defect could be that the Prosecution under section 138, N.I. Act is only maintainable against a legally enforceable debt. A time barred debt, however, is a not a legally enforceable debt. In the case of Girdhari Lal Rathi v. P.T.V. Ramanujachari[6] the Hon’ble Andhra Pradesh High Court clearly held that if a cheque is issued for a time barred debt and it is dishonoured, the accused cannot be convicted under section 138 of the N.I. Act simply on the ground that the debt is not legally recoverable.

In Saketh India Ltd. v. Indian Securities Ltd, [7]the Hon’ble Supreme Court of India held that, ‘ordinarily in computing time, the rule observed is to exclude the first day and to include the last, and the period of one month will be reckoned from the day immediately following the day on which the period of 15 days from the date of receipt of notice by the drawer expires. The 15th day is to be excluded for counting the period of one month. The month employed in the Act has not been defined anywhere in the N.I. Act and the same means a British Calendar Month and not lunar month, by following the definition given in Sec. 3 (35) of the General Clauses Act meaning thereby that a month means only a period of 30 days’

iii. DEFECT IN THE NOTICE:

They say Drafting is a serious business and any sort of mismatch in the legal notice sent in a NI case can greatly helped the accused in a significant manner. There are various authorities is support of this: Mohamad Irfan vs Velukannan[8] the Hon’ble Madras High Court categorically acquitted the accused on the basis of the defective notice “37.Be that as it may, in the instant case, even though the Appellant/Complainant, at paragraphs 8 & 12, in the complaint, had mentioned the cheque number as '361868' and mentioned the cheque number incorrectly as '361838' in Ex.P3 Notice, this Court is of the considered view that there is no mist or cloud or shroud or any manner of simmering doubt in regard to the language employed in Section 138of the Negotiable Instruments Act. Admittedly, notice will have to be read in entirety. In the present case, there was no correction notice communicated/issued on behalf of the Appellant/Complainant to the Respondent/Accused”. In the case of Dalmia Cement (Bharat) Ltd. v. M/s. Galaxy Traders[9], the Hon’ble Supreme court of India has made a difference between ‘giving’ of the notice and ‘Receipt’ of the notice, if the complainant relies upon the ‘giving’ and does not show case that the notice was received by the accused. Then that ground could be used as a defence by the accused.

MERIT:

If the defence by way of cross-examination proves that, there is absence of ingredients of the section 138 or the liability that could get the accused acquitted. The complainant while filing of the complaint has to file the evidence by way of affidavit, under section 145 of the Negotiable Instrument Act, and thus upon such evidences the defendant could find a loophole during the cross-examination.

VICARIOUS LIABILITY:

Section 141 of the said Act, in case of offence by Company, provides for vicarious liability on every person who, at the time the offence was committed, was in charge of, and was responsible to the Company for the conduct of the business of the Company. This includes the signatory directors and not for directors with no liability. In the case of Aneeta Hada v. Godfather Travels & Tours Private Limited[10], the Hon’ble Supreme court of India had held that, the prosecution launched against the directors without joining the company (or against the partners of the partnership firm, without joining the partnership firm) cannot be maintainable.

MEDIATION:

As the section under 138 of the Negotiable Instrument Act is a compoundable offence, it gives the right to the parties to resolve the dispute without the interference of the court. After the respondent first appears in the case of the complaint under Section 138 of the N.I. Act, before proceeding further with the case, the Magistrate may proceed to record admission and denial of documents in accordance with Section 294 of the Cr.P.C., and if satisfied, at any stage before the complaint is taken up for hearing, there exist elements of settlement, the magistrate shall inquire from the parties if they are open to exploring possibility of an amicable resolution of the disputes. If both the parties agrees, If a settlement is reached during the mediation, the settlement agreement which is drawn up. Thereafter, the mediator should forward a carefully executed settlement agreement duly signed by both parties along with his report to the Court on the date fixed, when the parties or their authorized representatives would appear before the Court. The magistrate records the terms of the conditions and upon receiving a request from the complainant, that on account of the compromise vide the settlement agreement, it is withdrawing himself from prosecution, the matter has to be compounded and the accused is acquitted. This path was shown by the Apex court in M/S Meters And Instruments vs Kanchan Mehta[11]

THE GAME OF PRESUMPTIONS

Presumption literally means, "taking as true without examination or proof[12]”. It is a cardinal principle of criminal jurisprudence that it is the burden of the prosecution to prove the guilt of the accused beyond reasonable doubt. Statutory presumptions, wherever available, create an exception to this cardinal principle by shifting the burden of proof to the opposite party. There are two essential presumptions when it comes to the proof of the offence under section 138. They are available under sections 118(a) and 139 of the Act.

Section 118 of the Negotiable Instrument Act lays down some special rules of evidence relating to presumptions. The section raises presumptions, until the contrary is proved by the accused, such as (i) consideration date of instrument, (ii) time of acceptance, (iii) time of transfer, (iv) order of endorsements, (v) appropriate stamp and (vi) holder being a holder in due course

Section 118 :The onus is on the complainant to prove the execution between the accused and him, as soon as the execution proved in the eyes of the court. The court uses the definition of “prove” or “disapprove” to the principle behind the section 118(a) of the Act. Then the burden of proof shifts upon the Accused. However if the execution of the instrument is in question, the plaintiff has to prove both execution as well as the passing of the consideration[13]., and if the complainant succeeds, the only rescue for the Accused is Section 139 of the Negotiable Instrument Act.

Section 139 : This section under Negotiable & Instrument Act which is an example of Reverse Onus Clause[14], states that it shall be presumed that the cheque holder in nature under section 138 received the cheque, until proved contrary by the accused.

It is a device to prevent undue delay in the course of litigation.[15]. The section acts as a presumption that the cheque issued by the accused is the liability pending against the complainant. This section provides the accused an opportunity to rebut the presumptions under section 118 of the Negotiable Instrument Act. The accused person by bringing on record the facts and circumstances, upon consideration of which in context with section 118 (a) of the Negotiable Instrument Act. The court may believe either that the consideration and debt did not exist or their non-existence was so probable that a prudent man would under the circumstances of the case, act upon the plea that they did not exist. Something, which is probable, would not serve the purpose.

In the absence of compelling justifications, reverse onus clauses usually impose an evidentiary burden and not a persuasive burden. Keeping this in view, it is a settled position that when an accused has to rebut the presumption u/s 139, the standard of proof for doing so is that 'preponderance of probabilities'[16]. This principle works where the accused has to prove that the consideration and debt did not exist or that under the particular circumstances of the case the non-existence of consideration and debt is so probable that a prudent man ought to suppose that no consideration and debt existed. For example if a person is claiming money under one cheque and the accused has already made the payment before or after, but the cheque was unlawfully taken after the consideration amount being paid, the FIR against such unlawful possession of the cheques could act as a powerful defence. If a payment done through the banking, then transaction from the bank could be used as an evidence that the liability was earlier paid, denial of the signature on the check could also be used.

DIRECT EVIDENCE ALONG WITH CIRCUMSTANTIAL EVIDENCE

The Direct evidence along with circumstantial evidence helps the accused to rebut the evidence, but it is to be borne in mind that the circumstantial evidence has to be compelling. The Accused may also with the help of section 114 of the evidence act, rely upon presumptions of fact to rebut the presumptions arising under Sections 118 and 139 of the Act.

THE POWER OF CROSS – EXAMINATION

During the cross- Examination it is important for the prosecution and the defence is to prove and to rebut the Foundational Fact, which are the presumptions that have been arisen. The defence has to prove by demonstrating the real facts of the matter by direct evidence along and material placed on record by the complainant himself was not believable. It is not important in the 138 case to file evidences, but what is important is to rebut the evidences that have given presumption to the ingredients under section 138 of Negotiable Instrument Act. Defence which cannot be taken is explicitly mentioned under section 140 of the act, which states that, the drawer had no reason to believe when he issued the cheque that the cheque may be dishonoured on presentment for the reasons stated in that section

In the words of David Kaiser "Presumptions are the bats of the law, flitting in the twilight, but disappearing in the sunshine of actual facts".[17]

Under the Indian Evidence Act all presumptions must come under one or the other class of the three classes mentioned in the Act, namely, (1) "may presume" (rebuttable), (2) "shall presume"(rebuttable) and (3) "conclusive presumptions" (irrebuttable).The section 139 and section 118 are the two sections, which are rebuttable, and give a chance to the accused person to rescue himself.

All these techniques can surely get the things straight from the accused side and help him sail out successfully from a Cheque bounce case.

“Let Hundred Guilty Be Acquitted But One Innocent Should Not Be Convicted”

The author is a lawyer practising in Delhi High Court. Views of the Author are personal and for educational purpose only.

[1] 5 th Edn., at 215 (1973). [2] (2011) 4 SCC 593. [3] Section 118 & 139 of the Negotiable Instrument Act. [4] Geekay Exim (India) Ltd. v. State of Gujarat (1998) [5] (2014) 9 SCC 129 [6] [1997 (2) Crimes 658 [7] (1999) 3 SCC 1 [8] https://indiankanoon.org/doc/36664677/ [9] AIR 2001 SC 676 [10] (2012) 5 SCC 661 [11] https://indiankanoon.org/doc/160848531/ [12] M/s. Kumar Exports v. M/s. Sharma Carpets, 2009(1) RCR (Criminal) 478 [13] Narayanan Gangadhara Panicker v. T.R. Haridasan [14] Rangappa vs. Sri Moha MANU/SC/0376/2010 [15] Rangappa vs. Sri Mohan-MANU/SC/0376/2010 [16] https://indiankanoon.org/doc/87091644/ [17] article titled "Presumptions of Law and Fact" published in Marquette Law Review quoted majority opinion of the Missouri Court in the case of Machowik vs. Kansas City-196 Mo. 550 (1906)