Beruflich Dokumente
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The word negotiable means transferable by delivery and the word instrument means a
written document by which a right is created in favour of some person. The transfer should
be unrestricted and in good faith.
Therefore, a negotiable instrument is a document guaranteeing the payment of a specific
amount of money, either on demand, or at a set time, with the payer named on the document.
It is an indebtedness to pay an amount and the negotiable instrument is an unconditional
guarantee for the same.
Some Examples of Negotiable instruments are Promissory notes, Cheques, Bills of Exchange,
bearer bonds, bank notes etc.
The Indian law on Negotiable instruments is governed by the Negotiable Instruments Act of
1881.
The Negotiable Instruments Act 1881 was passed in 1882 and was amended in 1989 and
2002, Before 1988 there was no provision to restrain the person issuing the Cheque without
having sufficient funds in his account. The only remedy against a Dishonoured cheque was a
civil liability accrued. In order to ensure promptitude and remedy against the defaulters of the
Negotiable Instrument a criminal remedy of penalty was inserted in Negotiable Instruments
Act, 1881 by amending it with Negotiable Instruments Act, 1988. The second noteworthy
amendment was when the parliament enacted the Negotiable Instruments (Amendment and
Miscellaneous Provisions) Act, 2002 which is intended to plug the loopholes. This
amendment Act inserts five new sections from 143 to 147 touching various limbs of the
parent Act. This act is applicable to the whole of India including the state of Jammu and
Kashmir, which was brought under the purview of the act in 1956.
Objective
The objective of the act is to define the various negotiable instruments such a, promissory
notes, bills of exchange, cheque etc. Also to prescribe the liability in case of a failure of the
instrument to fulfill its debt due to the default on the part of the payer or to curb scrupulous
practices adopted to escape liability in respect of negotiable instruments. However, Section
138 in regard to dishonor of cheque attracts criminal liability.
It is manifest that to constitute an offense under Section 138 of the Act; the following
ingredients are required to be fulfilled[1]
To put it in simpler terms the law stated that the person must owe some amount of money to
another and draws a cheque in that regard to fulfil that liability, the cheque be drawn on an
account in a bank by him. The cheque was then presented to the bank within 3 months of the
date on which it is drawn. However due to insufficiency of funds the cheque is returned by
the bank unpaid. The payee (the bank) makes a demand for payment of said amount which
the person owed within 30 days of the information received by him (the person who owed the
money) that the cheque was returned unpaid; and thereafter the person fails to pay the amount
within 15 days of the notice by the bank.
1. Cheque bounce notice must be issued by the payee to the defaulter, within 30 days
of dishonor of cheque, by registered post (or Speed Post) acknowledgement due.
The cheque bounce notice must be proper format, with information like nature of
transaction, amount, date of cheque deposit, date of cheque bounce, reason for
cheque bounce and request to make payment within 15 days.
2. If the cheque defaulter fails to make payment within 15 days of cheque bounce
notice, the payee should file a criminal case in a court within 30 days from the expiry
of notice period of 15 days. Cheque bounce complaints must be filed in a court in
the city where the cheque was presented.
3. Once the case is filed, the court will hear the case and issue summons under Section
138 of the Negotiable Instruments Act.
4. The cheque defaulter would then have to submit surety and appear before the Court
for resolution of the matter.
Where any cheque drawn by a person on an account maintained by him with a banker for
payment of any amount of money to another person from out of that account for the
discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid.
either because of the amount of money standing to the credit of that account is insufficient
to honour the cheque or that it exceeds the amount arranged to be paid from that account
by an agreement made with that bank, such person shall be deemed to have committed an
offence and shall, without prejudice. to any other provision of this Act, be punished with
imprisonment for a term which may extend to one year, or with fine which may extend to
twice the amount of the cheque, or with both: Provided that nothing contained in this
section shall apply unless:
The cheque has been, 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;
The payee or the holder in due course of the cheque as the case may be, 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 fifteen days of the receipt of information by him
from the bank regarding the return of the cheque as unpaid; and
The drawer of such cheque fails to make the payment of the said amount of money
to the payee or, as the case may be, to the holder in due course of the cheque,
within fifteen days of the receipt of the said notice. Explanation.-For the purposes of
this section, debt or other liability means a legally enforceable debt or other
liability.
Explanation: For the purposes of Section 138 of Negotiable Instruments Act, debt or other
liability means a legally enforceable debt or other liability.
If the person committing an offence under section 138 is a company, 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, 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: Provided that nothing contained in this sub-section shall render any person
liable to punishment if he proves that the offence was committed without his knowledge, or
that he had exercised all due diligence to prevent the commission of such offence.
Where any offence under this Act has been committed by a company and it is proved that
the offence has been committed with the consent or connivance of, or is attributable to, any
neglect on the part of, any director, manager, secretary or other officer of the company,
such director, manager, secretary or other officer shall also be deemed to be guilty of that
offence and shall be liable to be proceeded against and punished accordingly.
Latest Law
By a landmark judgment, Dashrath Roopsingh Rathod Vs. Stae of Maharashtra & Anr.
In this case, the Supreme Court has changed the basic criteria under Section 138 of
Negotiable Instruments Act which is to prosecute a person who had presented the cheque
which had been returned due to insufficiency of funds or if the amount exceeds the amount in
the bank of the payer.
Earlier, a case under Section 138 could be initiated by the holder of the cheque at his place of
business or residence. But, a bench of justices TS Thakur, Vikramjit Sen and C Nagappan
ruled that the case has to be initiated at the place where the branch of the bank on which the
cheque was drawn is located.
And the judgment would apply retrospectively. This means, lakhs of cases pending in various
courts across the country would witness a interstate transfer of cheque bouncing cases.
The bench said: In this analysis, we hold that the place, situs or venue of judicial inquiry and
trial of the offence must logically be restricted to where the drawee bank is located.
Example: Mr. X who resides in Chennai owes Rs. 1 Lakh to Mr. B who resides in
Chandigarh, Mr. X issues a cheque in delhi in favour of Mr. B. The cheque bounces in
Ludhiana (place of bank where the cheque is given by Mr. B) for insufficiency of funds.
According to the earlier law Mr. X could have chosen any of the four places. But by the
recent judgment the only place for institution of case would be Ludhiana, i.e. where the
cheque has dishonored at the payee bank which is located in Ludhiana in this example.
The rationale behind this change is that the payers majority being businessmen and traders
were using extending credit recklessly and due to the leniency in the provision of Section
138, it was being misused in regards to the place of institution, as sometime the payer had no
concern with the place where the cheque was issued and to unnecessarily harass the payee
cause hardship of place of institution of case according to their convenience. To curb this
practice this judgment aims to get to the root of the issue and resolve it by a strict approach so
as to discourage the payer from misusing or carelessly issuing cheques. The hardship of
traveling to the location of drawee bank is now on the payer.
The change in the existing law shifts the inconvenience and hardship on the payer because
now he would have to travel to the place of the drawee bank where the cheque gets
dishonored due to insufficiency of funds. Hence, guaranteeing more precaution by the payer
at the time of issuing the cheque.
To,
________________
Dear Sir,
Date:____________
Yours faithfully,