CERTIFICATE COURSE ON NEGOTIABLE INSTRUMENTS

ACT

ASSIGNMENT

Name: - FARHA RAHMAN

Email ID: - rahman_farha16@yahoo.com

Contact no. – 9871156234

Negotiable Instruments Act (ASSIGNMENT)

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ANALYTICAL QUESTIONS [Within 200 Words]

10 Marks Each
1. What measures shall be taken to make the enforcement of Section 138 of the
Negotiable Instruments Act more effective and speedier, looking at the present
growing concern for the same?

Ans. 1

Chapter XVII containing Sections 138 to 142 was introduced with the aim of
inculcating confidence in the efficacy of banking operations and giving credibility to
negotiable instruments employed in business transactions. If a party issues a cheque
as a mode of deferred payment and the payee of the cheque accepts the same on the
faith that he will get his payment on due date, then he should not suffer on account of
non-payment.

The penal provisions contained in Sections 138 to 142 of the Act have been enacted
to ensure that obligations undertaken by issuing cheques as a mode of deferred
payment are honoured.

Objective of Section-138 of Negotiable Instrument Act,1881:

The objective of sec 138 of NI Act is to promote the efficiency of banking operations
and to ensure credibility in transacting business through cheques as is mentioned in
the case law Modi Cements Ltd. v. Kuchil Kumar Nandi. This Act was enacted and
Section 138 of NI Act was thereof incorporated with a specified object of making a
special provision by incorporating a strict liability so far as the cheque, a negotiable
instrument, is concerned. 

Scope of Section 138 of Negotiable Instrument Act,1881:

Section 138 creates statutory offence in the matter of dishonour of cheques on the
ground of insufficiency of funds in the account maintained by a person with the
banker and when exceeds the amount arranged to be paid from that account by an
agreement made with that bank as mentioned in the act.

But there are many reasons for dishonour of cheque i.e., signature doesn’t match,
Payment stopped by the drawer, Account closed by the drawer etc., whenever any
cheque for discharge of any legally enforceable debt or other liability is dishonoured
by the bank for want of funds and the payment is not made by the drawer in spite of a
legal notice of demand, it shall be considered to be a criminal offence. This Act

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 considers the dishonour of cheque as a criminal offence but it is in a summary mode
of enforcing a civil right.

Generally, in a criminal law mens rea is an essential component of a crime but

dishonour of cheque is a criminal offence wherein there’s no need of proving a
mens rea and it is not an essential thing. Construction of the strict liability in this
section is an effective measure to prevent usual careless or change of attitude of the
drawers in discharge of debts.

The landmark attempt was to convert civil liability into criminal liability. A few
significant points to consider were: -

i. No court shall take cognizance of such an offence except on a complaint received in

writing to the payee or the holder in due course of the cheque.
ii. Such a complaint was made within one month of the date on which the cause of action
arises.
iii. No court inferior to that of a Metropolitan Magistrate or a Judicial Magistrate of the
first class shall try any such offence.

The offence of dishonour of cheque has been transformed from a civil liability to a
criminal liability to provide for speedier and adequate safeguards.

Liabilities on Dishonour of Cheques:

Civil Liability: As per section 138 of the NI Act provides the civil liability by
imposing a fine twice the amount of dishonoured cheque. But if the payee files a suit
under Order 37 of Code of Civil Procedure, 1908 and if the judgement is in favour of
the payee, then the drawer should pay the amount mentioned in the court order.

Criminal liability: Sec 138 provides the punishment of imprisonment of two years or

fine or both and the drawer of the cheque will be prosecuted under sections of 417 and
420 of Indian Penal Code (IPC),1860.

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 2. Which Courts have jurisdiction to entertain complaints under Section 138 of the
Negotiable Instruments Act? Explain with reference to landmark case/cases?

Ans.2

The Act is silent on the matter relating to the appropriate jurisdiction with respect to
filing of criminal complaint under Section 138. However, since the Criminal courts
are approached, the issue needs to be examined from the point of view of the Criminal
Procedure Code, 1973, Section 177 and 178(d) of Code of Criminal Procedure (herein
after called as Cr.P.C).

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 "(a) When it is uncertain in which of several local areas an
offence was committed, or (b) Where an offence is committed partly in one local area
and party in another, or (c) Where an offence is a continuing one, and continues to
be committed in more local area has one, or (d) Where it consists of several acts
done in different local areas, It may be inquired to or tried by a court having
jurisdiction over any of such local areas."

Thus, in all the above situations, the court having jurisdiction over any of such local
areas may try the offence.

Position Before "K.BHASKARAN" Case

Sanjai Makkar and Ors.Vs.Saraswati Industrial Syndicate Limited and Ors.18

The High Court of Allahabad held "...so far as territorial jurisdiction is concerned, the
cause of action arises at a place where the cheque was drawn, or a place where the
cheque was presented, or a place where the payee made a demand for payment of the
money by giving a notice in writing to the drawer within the stipulated period and at a
place where the drawer failed to make the payment within 15 days of the receipt of
notice."

In Gautham T. V. Centre vs Apex Agencies held in the year 1993, the High Court of
Andhra Pradesh held that the Court within whose jurisdiction the cheque is given, or
where the information of dishonour is received or where the office of the payee is
situating, will have jurisdiction to try the offence.

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 Position Of and After 'K. BHASKARAN' Case

K. Bhaskaran Vs. Sankaran Vaidhyan Balan and Anr

It was held in paragraph 12 of the judgment that "Under Section 177 of the Code
"every offence shall ordinarily be inquired into and tried in a court within whose
jurisdiction it was committed.

"The locality where the bank (which dishonoured the cheque) is situated cannot be
regarded as the sole criteria to determine the place of offence........A place, for that
purpose, would depend upon a variety of factors. It can either be at the place where
the drawer resides or at the place where the payee resides or at the place where
either of them carries on business. Hence, the difficulty to fix up any particular
locality as the place of occurrence for the offence under Section 138 of the Act."

Considering and reproducing the constituents of section 138 of NI Act and section
178(d) of the Code, held:

"(1) Drawing of the cheque, (2) Presentation of the cheque to the bank, (3) Returning
the cheque unpaid by the drawee bank, (4) Giving notice in writing to the drawer of
the cheque demanding payment of the cheque amount, (5) failure of the drawer to
make payment within 15 days of the receipt of the notice... It is not necessary that all
the above five acts should have been perpetrated at the same locality. It is possible
that each of those five acts could be done at 5 different localities. But concatenation
of all the above five is a sine qua non for the completion of the offence under Section
138 of the Code. In this context a reference to Section 178(d) of the Code is
useful......Thus it is clear, if the five different acts were done in five different localities
any one of the courts exercising jurisdiction in one of the five local areas can become
the place of trial for the offence under Section 138 of the Act.

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 Conclusion:

So far as jurisdiction of the Area is concerned, the complainant can choose any one of
those courts having jurisdiction over any of the local areas within the territorial limits
of which any one of the following acts took place:

(i) Drawing of the cheque

(ii) Presentation of the cheque;
(iii) Returning of the cheque by drawee bank;
(iv) Giving of notice in writing to the drawer of the cheque demanding payment of
cheque and
(v) Failure of the drawer to make payments within 15 days of receipt of notice.

3. Explain the following: -

Ans. 3

 Bearer Cheque:

Identification of a Bearer Cheque:

When the word “Pay to” mentioned in the cheque is cancelled by means of simple
line/crossing and the word Bearer is ticked, it is treated as a Bearer cheque.

Payable to:

When a cheque is payable to a bearer (the person who bears the cheque), it is called as
bearer cheque.

 Order Cheque

Identification of a Bearer Cheque:

When the word “bearer” mentioned in the cheque is cancelled by means of simple
line/crossing, it is treated as order cheque.

Payable to:

This means that the money is paid to the Specified person only, whose name is mentioned in
the cheque as a Payee. In the case of order cheques, banks require identity of the person to
whom payment is made and they obtain proof of identity when they make payments.
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 The payment against an Order Cheque is credited to the Payee’s account only. It is not
possible to get cash over the counter from the drawee bank against an Order Cheque.

 Uncrossed Cheque

An uncrossed cheque or an open cheque is a cheque that has not been crossed with two
parallel lines on the top left corner. Such cheques can be encashed at any bank. You can
collect the money for the cheque from the bank counter. It can also be transferred to the
bank account of the person who presented the cheque.

Types of uncrossed/open cheques are:

a) Bearer cheques
b) Order cheques

 Crossed Cheque

A crossed cheque is one which has two short parallel lines marked across its face. A cheque
which carries too parallel transverse lines across the face of the cheque with or without the
words “I and co”, is said to be crossed.

By simply crossing a cheque or with the words ‘& Co’, by the payer, the payee can either
deposit it in his/her account or endorse it in favour of another person on the reverse.

Crossed cheques are of two types: -

1. A cheque crossed generally will be paid to any bank through which it is presented.
2. A cheque crossed specially will be paid only when it is presented for collection by the bank
named between the parallel lines. Such crossing affords a greater measure of protection
against loss.

The advantage of crossing is that it reduces the danger of unauthorised persons getting
possession of a cheque and cashing it. A crossed cheque can only be cashed through a bank
of which the payee of the cheque is a customer.

 Post Dated Cheque

If a cheque bears a date later than the date of issue, it is termed as post-dated cheque.

Any check or draft that has a future date written upon it by the user. The amount of the check
will not be drawn from the account until the date written on the check. For example, a check
written on the 14th of the month but dated for the 28th will not be cashed for another two
weeks.

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 Stale Cheque:

A Stale cheque is one that is presented at the paying bank after a certain period (typically Three
months) of its payment date.

A stale check is not an invalid check, but it may be deemed an ‘irregular’ bill of exchange. A
bank may refuse to honour it unless its drawer reconfirms it payment either by inserting a new
payment date or by issuing a new check.

4. Considering the present-day developments, how do you think some aspects of the
Negotiable Instruments Act be bought online?

Ans. 4

New rules for bounced cheques matter in online banking era have been introduced. Such
rules aim to reduce delays in resolution of cheque bouncing cases.

2018 AMENDMENTS:

Two new Sections i.e 143A and 148 have been inserted under the Negotiable Instruments
Act, 1881 via the Amendment Act:

1. Section 143A- It empowers the Court to order the drawer of the cheque to pay Interim
Compensation to the complainant:

i. In case of a summary trial or a summons case, where the drawer pleads not guilty to
the allegations made in the complaint, and
ii. In any other case, upon framing of the charges.

Quantum of Compensation - The compensation amount shall not exceed 20% of the
amount of the Cheque.

On Acquittal - In case where the drawer is acquitted then the payee may be directed to
refund the entire amount of interim compensation along with the RBI's Prevailing interest
rate, to the drawer.

Time Frame - The interim compensation shall be paid within 60 days from the date of the
order by the court which may be further extended by an additional period of 30 days, subject
to the sufficient reasons being shown.

2. Section 148 – It empowers the Appellate Court to order payment pending the appeal
against conviction under Section 138 of the Negotiable Instruments Act.

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The Appellate Court may order the appellant to deposit an amount which shall be a minimum
of 20% of the fine or compensation awarded by the trial Court.

This amount shall be in addition to the amount already paid by the appellant under Section
143A.

This deposit may be released by an order for payment to the complainant at anytime during
the pendency of the appeal.

On Acquittal - In case of the appellant being acquitted, the court shall direct the complainant
to refund the entire deposit amount along with the RBI's prevailing interest rate to the
appellant.

Time Frame - The deposit amount shall be paid within 60 days from the date of the order by
the court which may be further extended by an additional period of 30 days, subject to the
sufficient reasons being shown.

CONCLUSION:
The Amendment Act comes across as a relief for the Payee of the Cheque, who has to spend
a significant amount of time and energy in the court to recover the money due to him in a
Cheque bounce case.

Relevant Case Study: -

M/s Meters and Instruments Pvt. Ltd. vs. Kanchan Mehta (2018)
While considering the speedy disposal of Cheque bounce case the Hon’ble Apex Court held
that the trials under Chapter XVII of the Act are expected normally to be summary trial. Once
the complaint is filed which is accompanied by the dishonoured cheque and the bank’s slip
and the affidavit, the Court ought to issue summons. The service of summons can be by
post/e-mail/courier and ought to be properly monitored.
The summons ought to indicate that the accused could make specified payment by deposit in
a particular account before the specified date and inform the court and the complainant by e-
mail. In such a situation, he may not be required to appear if the court is satisfied that the
payment has not been duly made and if the complainant has no valid objection. If the accused
is required to appear, his statement ought to be recorded forthwith and the case fixed for
defence evidence, unless complainant’s witnesses are recalled for examination.

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 5. What were the 2015 and 2018 Amendments to the Negotiable Instruments Act?
What purpose would they serve?

Ans. 5

2015 Amendments to the Negotiable Instruments Act

The 2015 Amendment Act seeks to modify the definition of a cheque in electronic form, and
clarify the appropriate area of jurisdiction of courts, where cases of cheque bouncing can be
filed.

 In the case of a cheque being dishonoured:

i. If the cheque is delivered for collection to the account of the payee (person
who receives the cheque), the jurisdiction lies in the area of the bank
branch where the payee maintains an account, or
ii. If the payee presents a cheque to a bank in any other way, the jurisdiction
lies in the area of the bank branch where the drawer (person who writes the
cheque) maintains an account. 

 If the payee has filed a complaint against the drawer in a court with the appropriate
jurisdiction, all subsequent complaints against that person regarding cheque bouncing
will be filed in the same court.  This will be irrespective of whether the cheque was
delivered for collection or presented at a bank within the territorial jurisdiction of that
court. 

 If more than one case is filed by the same payee against the same drawer before
different courts, the case will be transferred to the court with the appropriate
jurisdiction before which the first case was filed.

 All cases regarding cheque bouncing which are pending in any court, before this
Amendment Act, to be transferred to a court with appropriate jurisdiction.

 The 2015 Amendment Act also amends the definition of ‘cheque in the electronic
form’.  Under the Act, this was defined as a cheque containing the exact mirror image
of a paper cheque and generated in a secure system using a digital signature.  The
definition has been amended to mean a cheque drawn in electronic medium using any
computer resource, which is signed in a secure system with a digital signature and
asymmetric crypto system (pair of a public key and private key to create a digital
signature), or electronic system. 

 The definitions of ‘computer resource’, ‘digital signature’, ‘electronic system’ and

‘asymmetric crypto system’ are amended to be the same as those assigned to them in
the Information Technology Act, 2000.

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Purpose of introduction:

The amendments to the Negotiable Instruments Act, 1881 (“The NI Act”) are focused on
clarifying the jurisdiction related issues for filing cases for offence committed u/s 138 of the
NI Act.

2018 Amendments to the Negotiable Instruments Act:

2018 AMENDMENTS:

Two new Sections i.e 143A and 148 have been inserted under the Negotiable Instruments
Act, 1881 via the Amendment Act:

1. Section 143A- It empowers the Court to order the drawer of the cheque to pay Interim
Compensation to the complainant:

i. In case of a summary trial or a summons case, where the drawer pleads not guilty to
the allegations made in the complaint, and
ii. In any other case, upon framing of the charges.

Quantum of Compensation - The compensation amount shall not exceed 20% of the
amount of the Cheque.

On Acquittal - In case where the drawer is acquitted then the payee may be directed to
refund the entire amount of interim compensation along with the RBI's Prevailing interest
rate, to the drawer.

Time Frame - The interim compensation shall be paid within 60 days from the date of the
order by the court which may be further extended by an additional period of 30 days, subject
to the sufficient reasons being shown.

2. Section 148 – It empowers the Appellate Court to order payment pending the appeal
against conviction under Section 138 of the Negotiable Instruments Act.

The Appellate Court may order the appellant to deposit an amount which shall be a minimum
of 20% of the fine or compensation awarded by the trial Court.

This amount shall be in addition to the amount already paid by the appellant under Section
143A.

This deposit may be released by an order for payment to the complainant at anytime during
the pendency of the appeal.

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On Acquittal - In case of the appellant being acquitted, the court shall direct the complainant
to refund the entire deposit amount along with the RBI's prevailing interest rate to the
appellant.

Time Frame - The deposit amount shall be paid within 60 days from the date of the order by
the court which may be further extended by an additional period of 30 days, subject to the
sufficient reasons being shown.

Purpose of introduction:

New rules under the 2018 Amendment to Negotiable Instruments Act have been introduced
for dealing effectively with bounced cheques matter in online banking era. Such rules aim to
reduce delays in resolution of cheque bouncing cases.

The Amendment Act, 2018 comes across as a relief for the Payee of the Cheque, who has to
spend a significant amount of time and energy in the court to recover the money due to him in
a Cheque bounce case.

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