A PROJECT REPORT ON

ANALYSIS OF SECTION 138 OF NEGOTIABLE INSTRUMENTS ACT, 1881-

A CASE STUDY

SUBMITTED BY

POOJA NAVANDAR

16FLUHH01C0100

BBA LLB (HONS.)-21

AK Law Chambers

BENGALURU

1
 A PROJECT REPORT ON

ANALYSIS OF SECTION 138 OF NEGOTIABLE INSTRUMENTS ACT, 1881-

A CASE STUDY

A Report Submitted In Partial Fulfillment Of The Requirements OF BBA LLB (Hons)

Program of Faculty of Law, IFHE Hyderabad.

Project guide:
Mr. Nischal Dev

Submitted to:

Faculty Guide:

Dr. Akbar Khan

Asst. Professor
Faculty of Law (ILS)
IFHE Hyderabad

Submitted by

Pooja Navandar
16FLUHH01C0100
BBA LLB-21

2
 DECLARATION

Project Report ‘Analysis of Section 138 of Negotiable Instruments act, 1881-a case study” is
done at AK Law Chambers-Bengaluru. It is in partial fulfillment of summer internship
requirements of BBA.LLB (Hons.) program at Faculty of Law, IFHE-Hyderabad. The project
report work is original and hasn’t been submitted by me elsewhere.

Pooja Navandar

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 ACKNOWLEDGEMENT

Working at A.K.Law Chambers, under the guidance of Mr.Nischal Dev, Legal Counsel was an
enriching and nourishing experience. I would like to express my sincere gratitude to him for
encouraging and leading me to learn about a whole new subject; for providing his splendid
insight in various fields; for guiding me, correcting me and mentoring me despite his
extraordinarily busy schedule. All of this has been extremely valuable for my project both
theoretically and practically.

I would like to extend my deep thanks to Ms. Chaitra Srinivasan and other advocates of the firm
for providing me with this marvelous opportunity and for making this internship journey
possible.

I would like to thank Dr. Md. Akbar Khan for constantly helping me out and clearing my doubts
regarding the internship. Sir has been very supportive throughout the internship period, and has
been an excellent Faculty Guide.

Further, I would like to thank our Director Dr. A V Narasimha Rao Sir, for providing the
students of ICFAI Law School with the opportunity of Internships, as this is the only platform
for students for understanding the practicalities and application of various subjects.

Pooja Navandar

ICFAI Law School, Hyderabad

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 TABLE OF CONTENTS

Acknowledgment 4
Abstract 8
Significance And Objective Of The Study 9
Scope Of The Study 10
Research Methodology 10
Introduction 11
Various aspects of section 138 12
Main Case Of The Project 30
Questions of law involved and their Analysis with Caselaws 32
Conclusion 46
Recommendations 47
Bibliography 48

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 LIST OF CASES

1. Vinay Devanna Nayak v Ryot Sewa sahakari bank Ltd, (2008) 2 SCC 305.
2. SMS Pharmaceuticals Ltd. V. Neeta Bhalla, (2005) 8 SCC 89.
3. S. Rama Krishna vs S. Rami Reddy (D) By His Lrs. & Ors AIR 2008 SC 2066
4. KSL & Industries Ltd. V. Mannalal Khandelwal 2005 Cri. L. J. 1201 (Bombay)..
5. Kusum Ingots and Alloys Ltd. And Ors. Vs. Pennar Peterson Securities Ltd. And Ors.
AIR2000SC954
6. Nanda v. Nandkishor, 2010 (1) Crime s 708
7. 2004 (1) APEX C.J. 0273; 2004 (1) CR.C.C. 0693
8. Neps micon ltd. And others vs. Magma leasing ltd. 1999 (1) apex C.J. 0624
9. Laxmi Dyechem v. State of Gujarat, (2012) 13 SCC 375.
10. Mahendar s. Dadia vs. State of maharashtra i(1999) banking cases (bc) 133

11. MMTC Ltd. V. Medchl Chemicals and Pharma (P) Ltd., (2002) 1 SCC 234.
12. K. Bhaskaran vs. Sankaranvaidhyanbalan&Anr AIR 1999 SC 3762
13. Dashrath Rupsingh Rathod v. State of Maharashtra &Anr (2014) 9 SCC 129
14. Dashrath Rupsingh Rathod v. State of Maharashtra, (2014) 9 SCC 129
15. C.C. Alavi Haji v. Palapetty Muhammed, (2007) 6 SCC 555.
16. Rameshbhai Sombhai Patel v. Dineshbhai Achalanand Rathi, 2004 SCC online Guj 469.
17. Meters and Instruments (P) Ltd. V. Kanchan Mehta, (2018) 1 SCC 560.

18. AIR 2007 (DOC) 58 (P&H) ; 2006 (3) BANK J 327 (P&H)

19. Shrimati Neena Chopra v. Mahendra Singh Vaishya and Anr AIR2012MP22
20. (2018) 1 SCC 560.
21. Canara Bank vs Canara Sales Corporation & Ors 1987 AIR 1603,
22. Dalmia Cement (Bharat) Ltd vs M/S.Galaxy Trades & Agencies Ltd AIR 2000 SC 761
23. Dayawati v. Yogesh Kumar Gosain 2018ALLMR(Cri)161
24. Manjula G. Vs. Manjula B.T. 2018(2)Crimes580(Karnt.)
25. AIR 2001 Supreme Court 38974

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26. Basalingappa v. Mudibassapa, 2019 SCC online SC 491.
27. Laxmi Dyechem v. State of Gujarat, (2012) 13 SCC 375.
28. Rangappa v. Sri Mohan, (2010) 11 SCC 441.

29. Hiten P. Dalal vs Bratindranath Banerjee 2001 (3) CTC 243 (SC
30. Kumar Exports vs. Sharma Carpets AIR2009SC1518
31. State of Punjab and Anr. V. Jalour Singh and Ors (2008) 2 SCC 660.
32. Kishan Rao and Ors. Vs. Respondent: Bidar District Legal Services Authority and Ors.
AIR2001Kant407

33. K.N. Govindan Kutty Menon vs C.D. Shaji

34. Kalyani Baskar (Mrs.) V. Ms. Sampoornam 2007(93)DRJ401
35. Ajay Kumar Parmar v. State of Rajasthan AIR2013Delhi633

36. Ajay Vinodchandra Shah vs. The State of Maharashtra & Anr 2019ALLMR(Cri)2447
37. Ginni Garments & Anr vs. Sethi Garment & Anr 2019(2)RCR(Criminal)833
38. G.J.Raja vs. Tejraj Surana MANU/SC/1002/2019

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 ABSTRACT

Advent of cheques in the market have given a new dimension to the commercial and corporate
world, its time when people have preferred to carry and execute a small piece of paper called
Cheque than carrying the currency worth the value of cheque. Dealings in cheques are vital and
important not only for banking purposes but also for the commerce and industry and the
economy of the country. But pursuant to the rise in dealings with cheques also rises the practice
of giving cheques without any intention of honoring them.

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. Section 138 of the
Act can be said to be falling either in the acts which are not criminal in real sense, but are acts
which in public interest are prohibited under the penalty or those where although the proceeding
may be in criminal form, they are really only a summary mode of enforcing a civil right.
Normally in criminal law existence of guilty intent is an essential ingredient of a crime. However
the Legislature can always create an offence of absolute liability or strict liability where mens rea
is not at all necessary.

This paper attempts to delineate various aspects of Section 138 of the Negotiable Instruments
Act. Section 138 is the principal section dealing with dishonor of cheques. It delves to explain
the section, its essential ingredients, reasons for cheque bouncing, procedures and process as laid
out by the statute. Seeking to set out clarity on the points of law on relevant territorial
jurisdiction for filing a complaint for offence under Section 138- various decisions of the Courts
are set out, finally concluding with the latest development in law, The Negotiable Instruments
(Amendment) Ordinance, 2015, the application of Negotiable Instruments (Amendment) Act,
2018 to complaints filed before 1st September 2018 are also dealt with along with other relevant
provisions.

The paper also discusses various legal propositions relating to the case study undertaken by the
author along with landmark case laws. The propositions include matters related to presumption
under Section 139 of Negotiable Instruments Act, award passed by Lok Adalat in absence of a
party, the procedure when accused denies his signature on the cheque etc.

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 SIGNIFICANCE AND OBJECTIVE OF THE STUDY

A.K .Law Chambers is one of the Bangalore’s leading law firms. The firm provides
various services like Real estate & property lawyer services, Cyber lawyer services, Divorce,
Court marriage & family lawyer services, Civil lawyer services, Trade and Industrial dispute
lawyers services, Criminal Law services etc.

Like any other firm this firm also has several junior advocates, it engages several juniors
who are willing to practice law and enroll themselves , the firm also provides a great opportunity
to all the students studying law by engaging them as interns and guiding them in every way
possible so that they are familiar with the practical approach as well.

This study aims to

 To understand Section 138 of the Negotiable Instruments Act, 1881.

 The relevant provisions such as sec 118, 139,142, 143A, 147 and 148 of the Act which
are directly relating to the case study.
 To understand the application of Negotiable Instruments Amendment Act, 2018 to the
complaints filed before the enforcement of the Act.
 To understand the territorial jurisdiction of courts in case of Section 138 of the
Negotiable Instruments Act, 1881.
 To understand the effect of award passed by Lok Adalat in settlement proceedings when
one of the party is absent.
 To understand when an application can be made under section 45 of the Indian Evidence
Act i.e., when the accused denies his signature on the cheque.

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 SCOPE OF THE STUDY

The aim of the project is to understand the concept relating to cheque bounce under Section 138
of the Negotiable Instruments Act, 1881. The related provisions in the case study include Section
118,139,142, 143A, 147, 148 etc. The author insights to understand the effect of proceedings in
lok adalat when one of the party is absent during the settlement. Also Section 45 of the Indian
evidence act is studied and its application in cheque bounce cases has been studied about. And
lastly to understand the application of N.I Amendment Act, 2018 to complaints instituted before
1st September,2018.

RESEARCH METHODOLOGY

In order to arrive at a more complete understanding on the present case , I propose to use
the Analytical Research Methodology for completion of this project. This project requires
collection of relevant information from pertinent books, articles, documents etc. and compilation
of the apposite matter t hereafter.

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 INTRODUCTION

The Negotiable Instruments Act, 1881 deals with negotiable instruments, such as promissory
notes, bills of exchange, cheques etc. 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 transactions1. Currently the
chapter contains Sections 138 to 148.

Commercial globalisation has resulted in giving a big boost to our country. With the rapid
increase in commerce and trade, use of cheque also increased and so did the cheque bouncing
disputes.2 Over the years there have been many important changes in the way cheques are
issued/bounced/dealt with. 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.

Section 138 of The Negotiable Instruments Act, 1881 casts a criminal liability punishable with
imprisonment or fine or with both on a person who issues a cheque towards discharge of a debt
or liability as a whole or in part and the cheque is dishonoured by the bank on presentation.3
Speedy trial is a fundamental right of an accused. The orders passed by the competent court of
law as also the provisions of Code of Criminal Procedure must be construed having regard to the
Constitutional scheme and the legal principles in mind.4

In KSL & Industries Ltd. V. Mannalal Khandelwal5, the Bombay High Court observed:
Section 138, in fact, has been introduced to prevent dishonesty on the part of the drawer of
negotiable instrument to draw a cheque without sufficient funds in the account maintained by
him in bank and induce the payee or holder-in-due-course to act upon it. In other words, these
provisions have been introduced to give greater credibility to our trade, business, commerce and
industry, which is absolutely imperative in view of the growing international trade and business.
The constitutional validity of these provisions has been upheld by the Supreme Court.”

1 Vinay Devanna Nayak v Ryot Sewa sahakari bank Ltd, (2008) 2 SCC 305
2 Law Commission of India, 213th Report, Fast Track Magisterial Courts for Dishonoured Cheque Cases, November 2008.
3 SMS Pharmaceuticals Ltd. v. Neeta Bhalla, (2005) 8 SCC 89.
4 S. Rama Krishna vs S. Rami Reddy (D) By His Lrs. & Ors AIR 2008 SC 2066
5 KSL & Industries Ltd. V. Mannalal Khandelwal 2005 Cri. L. J. 1201 (Bombay).

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DEFINITION OF CHEQUE:
A cheque is a written instrument containing an unconditional order addressed to a banker signed
by the person who has deposited money to the banker requiring him to pay on demand a certain
sum of money to the bearer of the instrument.

Section 6 of the Negotiable Instruments Act, 1881 defines cheque-

‘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 electronic form.’

There are two expressions which are used in this definition namely ‘cheque in electronic form’
and ‘truncated cheque’. For the purpose of this definition,

1. “Cheque in electronic form” is a cheque which is drawn with the help of a computer
program signed in a secure system with a digital signature with or without biometrics
and asymmetric crypto system or electronic signature.
2. “Truncated Cheque” is a cheque which is truncated during clearing cycle either by
clearing house or by the bank whether paying or receiving payment immediately on
generation of an electronic image for transmission, substituting the further physical
movement of the written cheque.

SECTION 138 OF NEGOTIABLE INSTRUMENTS ACT, 1881:

138. Dishonor of cheque for insufficiency, etc., of funds in the accounts 6

Where any cheque drawn by a person on an account maintained by him with a banker for
payment of any amount of money to n 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 honor the cheque or

6
Section 138 of N.I Act, 1881

12
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 provisions 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-

(a) 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.

* As per RBI Direction dated 16th November 2011, the period for depositing Cheque has been
reduced from six months to three months.

(b) 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 thirty days of the receipt of information by him from the bank regarding the
return of the cheque as unpaid, and

(c) 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 purpose of this section, "debt or other liability" means a legally
enforceable debt or other liability.

The essential ingredients of this section are:

(i) a person must have drawn a cheque on an account maintained by him in a bank for payment
of a certain amount of money to another person from out of that account for the discharge of any
debt or other liability;

(ii) that 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;

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(iii) that cheque is returned by the bank unpaid, either because of the amount of money standing
to the credit of the 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 the bank;

(iv) 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 30 days
of the receipt of information by him from the bank regarding the return of the cheque as unpaid;

(v) the drawer of such cheque fails to make payment of the said amount of money to the payee or
the holder in due course of the cheque within 15 days of the receipt of the said notice;

If the aforementioned ingredients are satisfied then the person who has drawn the cheque shall be
deemed to have committed an offence. In the explanation to the section clarification is made that
the phrase "debt or other liability" means a legally enforceable debt or other liability. 7

DEBT OR LIABILITY:

Explanation to section 138 makes it clear that ‘debt or other liability’ as mentioned in sec 138
mean a legally enforceable debt or other liability and thus the dishonoured cheque must have
been received by the complainant against a “legally enforceable debt or liability8.

Supreme Court has held: “When it is a legally enforceable debt or a liability only then section
138 applies and relationship of the parties is not at all a factor germane to the proceedings 9”

7 Kusum Ingots and Alloys Ltd. and Ors. vs. Pennar Peterson Securities Ltd. and Ors. AIR2000SC954

8 Nanda v. Nandkishor, 2010 (1) Crime s 708

9 2004 (1) APEX C.J. 0273; 2004 (1) CR.C.C. 0693

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GROUNDS UNDER WHICH CHEQUES PRESENTED TO THE BANK ARE
DISHONOURED:

The following are the grounds under which cheques presented to the bank are dishonoured:-

1. Insufficiency of funds– This means that the amount written in the cheque is more than
the actual amount in the bank account of the drawer. While writing a cheque, the drawer
has to be sure that he has sufficient funds in his account otherwise the cheque presented
to the bank would get dishonored.
2. Account Closed- Closure of account would be an eventuality after the entire amount in
the account is withdrawn – It means that there was no amount in the credit of ‘that
account’ on the relevant date when the cheque was presented for honouring the same”10
Return of a cheque on account of account being closed would be similar to a situation
where the cheque is returned on account of insufficiency of funds in the account of the
drawer of the cheque which squarely brings the case within Section 138.
3. Irregular Signature- If the signature of the drawer in the cheque does not match the
specimen signature available with the bank, the cheque will get dishonoured.
The expression “amount of money … is insufficient” appearing in Section 138 of the Act
is a genus and dishonour for reasons such as “account closed”, “payment stopped”,
“referred to the drawer” are only species of that genus. Just as dishonour of a cheque on
the ground that the account has been closed is a dishonour falling in the first contingency
referred to in Section 138, so also dishonour on the ground that the “signatures do not
match” or that the “image is not found”, would constitute a dishonour within the meaning
of Section 138 of the Act.11
Alterations: According to RBI guidelines on Alterations/Corrections on the cheque
effective from 1st December, 2010, no changes shall be allowed on the cheques except
the mentioned date on the cheque. If any changes are to be made, a new cheque has to be

10 Neps micon ltd. And others vs. Magma leasing ltd. 1999 (1) apex c.j. 0624

11 Laxmi Dyechem v. State of Gujarat, (2012) 13 SCC 375.

15
 issued. Even if the alteration is signed for verification then also the cheque will be
considered invalid and will get dishonoured by the bank.
4. Post-dated Cheque– It is a cheque in which a future date is mentioned for collection
through an account. It has to be presented to the bank on the date mentioned on the
cheque. If it is presented before that date then it will get dishonoured.

On the faith of payment by way of a post-dated cheque, the payee alters his position by
accepting the cheque. If stoppage of payment before the due date of the cheque is allowed
to take the transaction out of the purview of Section 138, it will shake the confidence
which a cheque is otherwise intended to inspire regarding payment being available on the
due date. 12

5. Stale Cheque- If the cheque is presented to the bank after the expiry of its validity i.e.
after three months, the cheque gets dishonoured.
6. Stop Payment instructions– A ‘Stop Payment’ instruction is made to a bank to cancel a
cheque or stop the process of payment. This order is made by the account holder and can
be enacted if cheque or payment has not been processed. The cheque will get
dishonoured in this case. “Once the cheque has been drawn and issued to the payee and
the payee has presented the cheque, ‘stop payment’ instructions will amount to dishonour
of cheque.”13

A complaint under Section 138 can be made not only when the cheque is dishonoured for
reason of funds being insufficient to honour the cheque or if the amount of the cheque
exceeds the amount in the account, but also where the drawer of the cheque instructs its
bank to “stop payment”. If the accused shows that in his account there were sufficient
funds to clear the amount of the cheque at the time of presentation of the cheque and that
the stop-payment notice made out14.

12 Goaplast.(P) Ltd. v. Chico Ursula D’Souza, (2003) 3 SCC 232

13 mahendr s. Dadia vs. State of maharashtra i (1999) banking cases (bc) 133 (17/03/1998)

14 MMTC Ltd. v. Medchl Chemicals and Pharma (P) Ltd., (2002) 1 SCC 234.

16
 7. Frozen Account- It is an account from which the account holder cannot withdraw or
transfer money due to a court order but he can check his transactions and also receive
deposits. Therefore a cheque presented for collection through this account will get
dishonoured by the bank.

PROCEDURE:

Procedure that is followed in matters with regard to Section 138 15of the Act is as follows:

i. A legal notice is to be issued to the drawer within 30 days of dishonor of cheque by

registered post with all relevant facts. The drawer is given a time of 15 days to make the
payment, if the payment is made then the matter is served and the issue is settled. On the
other hand if the payment is not made then the complainant is to file a criminal case
process under Section 138 of the Act, against the drawer within 30 days from the date of
expiry of 15 days specified in the notice, with the concerned magistrate not below
Metropolitan Magistrate or a Judicial Magistrate of the first class.
ii. The complainant or his authorized agent should appear in the witness box and provide
relevant details for filing the case. If the court is satisfied and finds substance in the
complainant, then summons will be issued to the accused to appear before the Court.
iii. If after being served with the summons the accused abstains himself from appearing then
the court may issue a bailable warrant. Even after this if the drawer does not appear a
non-bailable warrant may be issued.
iv. On appearance of the drawer/accused, he may furnish a bail bond to ensure his
appearance during trial. After which the plea of accused is recorded. In case he pleads
guilty, the court will post the matter for punishment. If the accused, denies the charges
then he will be served with the copy of complaint and trial begins.
v. The Complainant may present his evidence by way of affidavit and produce all
documents including the original in support of his complaint. The complainant will be
cross examined by the accused or his counsel.
vi. The accused will be given an opportunity to lead his evidence. The accused will also be
afforded an opportunity to submit his documents in support of his case, as well as

15 Section 138 of N.I Act,1881

17
 witnesses in his support. Accused and his witnesses will be cross examined by the
complainant.
vii. The last stage of the proceeding is that of the arguments after which the court will pass a
judgment. If the accused is acquitted then the matter ends, but the complainant can go on
further appeal in the High Court, similarly if the accused is convicted he can file an
appeal in the Sessions Court.
viii. With the introduction of new sections i.e., Section 143A16 and 14817, The court has a
power to direct the Drawer to pay interim compensation to the the complainant up to 20%
of the amount of the dishonoured cheque, within 60 days from the date of its order, or
within a further period of 30 days, if the Drawer provides sufficient cause for such delay.
If the Drawer fails to pay interim compensation within this time frame, the court may
recover the said amount as a fine under Section 421 of the Code of Criminal Procedure,
1973.18
ix. Section 148 of the Act has been amended to state that if the Drawer appeals against an
order of conviction, the appellate court may order the Complainant to deposit with such
court, a minimum of 20% of the fine or compensation awarded by the lower court. This
amount is in addition to the interim compensation paid by the Drawer under Section
143A of the Act. The amended provisions also give appellate courts the discretion to
release this amount deposited by an appellant Drawer, to the Complainant, during the
pendency of the appeal.

It must be noted that the offence under Section 138 of the Act, has been made compoundable.

JURISDICTION:
The provisions of the Negotiable Instruments (Amendment) Act, 2015 shall be deemed to have
come into force on the 15th Day of June. It focused on clarifying the jurisdiction related issues
for filing cases for offence committed under section 138 of the Negotiable Instruments Act,
1881. The Negotiable Instruments (Amendment) Act, 2015, facilitates filing of cases only in a
court within whose local jurisdiction the bank branch of the payee, where the payee delivers the
cheque for payment through his account, is situated, except in case of bearer cheques, which are
16
Section 143A of the N.I Act,1881
17 Section 148 of the N.I Act,1881
18 Section 421 of the Code of Criminal Procedure,

18
presented to the branch of the drawee bank and in that case the local court of that branch would
get jurisdiction. The Negotiable Instruments (Amendment) Act, 2015 provides for retrospective
validation for the new scheme of determining the jurisdiction of a court to try a case under
section 138 of the Negotiable Instruments Act, 1881. The Negotiable Instruments (Amendment)
Act, 2015 also mandates centralization of cases against the same drawer.

The clarification of jurisdictional issues may be desirable from the equity point of view as this
would be in the interests of the complainant and would also ensure a fair trial. Further, the clarity
on jurisdictional issue for trying the cases of cheque bouncing would increase the credibility of
the cheque as a financial instrument. This is expected to help the trade and commerce in general
and allow the lending institutions, including banks, to continue to extend financing to the
productive sectors of economy, as the process of pursuing the cheque bouncing cases relating to
loan default has been made simpler and efficient through the proposed amendments to the
Negotiable Instruments Act, 1881.

The amendment of 2015 inserted Section 142(2)19 in the Principal Act. The amendment reads as
follows:

“(2) The offence under Section 138 shall be inquired into and tried only by a court within whose
local jurisdiction –

(a) If the cheque is delivered for collection through an account, the branch of the bank where
the payee or holder in due course, as the case may be, maintains the account, is situated; or

(b) If the cheque is presented for payment by the payee or holder in due course otherwise
through his account, the branch of the drawee bank where the drawer maintains the account, is
situate.

Explanation – For the purpose of clause (a), where the cheque is delivered for collection at any
branch of the bank of the payee or holder in due course, then, the cheque shall be deemed to have
been delivered to the branch of the bank in which the payee or holder in due course, as the case
may be, maintains the account.”

19
Section 142(2) of the N.I Act,1881

19
Therefore to summarise,

If the cheque is delivered for collection to the account of the payee, the jurisdiction lies in the
area of the bank branch where the payee maintains an account, or

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.

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.

POSITION BEFORE DASRATH CASE:

The question of Territorial Jurisdiction was considered by the Hon'ble Supreme Court in

“K. Bhaskaran vs. SankaranVaidhyanBalan&Anr20” wherein the Hon'ble Supreme Court after
duly considering Sections 177, 178 & 179 of the Criminal Procedure Code21, held that the
Territorial Jurisdiction in cases of Section 138 of the NI Act, could be made out on 5
considerations, which are as follows:

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 receipt of the Notice.

20 K. Bhaskaran vs. SankaranVaidhyanBalan&Anr AIR 1999 SC 3762

21
Sections 177, 178 & 179 of the Criminal Procedure Code

20
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. In other words, the complainant can choose any one of those courts
having jurisdiction over any one of the local areas within the territorial limits of which any one
of those five acts was done.

POSITION AFTER DASRATH CASE:

The Hon'ble Supreme Court in “Dashrath Rupsingh Rathod v. State of Maharashtra &Anr22”
case has observed rightly that "Courts are enjoined to interpret the law so as to eradicate
ambiguity or nebulousness, and to ensure that legal proceedings are not used as a device for
harassment, even of an apparent transgressor of the law. Law's endeavour is to bring the culprit
to book and to provide succour for the aggrieved party but not to harass the former through
vexatious proceedings."

The court held that, the territorial jurisdiction acc. to section 138 or under the act should
exclusively be determined and considered by place/location of the offence. The return of the
cheque by the drawer bank only constitutes commission of offence under section 138. Hence, the
courts within which drawer bank is located will only have the jurisdiction to try the case.

1) An offence under section 138 of the Act, will be considered committed as soon as the
cheque drawn by the accused on an account maintained by him for the discharge of debt
or liability is returned without honored, either due to insufficiency of funds of the said
drawer's account or the amount exceeds the drawer's arrangement with the bank. But, the
the cause of action could be derived or triggered only when:
 If the dishonored cheque is presented to the drawee bank within 3 months from its
issue.

22 Dashrath Rupsingh Rathod v. State of Maharashtra &Anr (2014) 9 SCC 129

21
  If the complainant demands for the questioned amount within 30 days of receipt of his
intimation from the concerned bank. (Bank which dishonored).
 If the drawer or the payer of the cheque has failed to pay the amount in question within
15 days of notice given by the complainant, payee or due holder of cheque.
23
2) The general rule stipulated under Section 177 of Cr.P.C applies to cases under Section
138 of the Negotiable Instruments Act. Prosecution in such cases can, therefore, be
launched against the drawer of the cheque only before the Court within whose
jurisdiction the dishonour takes place except in situations where the offence of dishonour
of the cheque punishable under Section 138 is committed along with other offences in a
single transaction within the meaning of Section 220(1) read with Section 184 of the
Code of Criminal Procedure or is covered by the provisions of Section 182(1) read with
Sections 184 and 220 thereof.
3) The court clearly addressed the term 'cause of action' and held that the facts constituting
cause of action do not constitute the ingredients of the offence under Section 138 of the
Act. And, once the cause of action is triggered in favor of the complainant, the
jurisdiction of the court to try the case will be determined by the place where the cheque
was returned dishonored.
4) In respect of pending cases it distinguished them into following categories and suggested
actions as follows:
a. Cases in which trial has commenced: Cases in which summoning and appearance of
the accused has taken place and recording of evidence has commenced will continue at
the same court. These cases will be deemed to have been transferred from the court which
had jurisdiction to the court where they are tried, as per the relaxation provided in public
interest.
b. Cases pending at the pre summoning stage: All other complaints including those
where the accused/respondent has not been properly served, cases in which summons
have not been issued will be maintainable only at the place where the cheque stands
dishonored.

23
Section 177 of Cr.P.C

22
 The rationale behind this change is that the wide jurisdiction for filing complaints as per the
interpretation of the Judgment in the case of K. Bhaskaran was being used as an arm twisting
tactic in the hands of the Complainant and against the accused, thereby not affording the
accused a fair opportunity and causing the accused undue harassment, which in the opinion
of the Hon'ble Supreme Court could never have been the intent of the Judgment in the case of
K. Bhaskaran .

Therefore, to summarise:

All cases regarding cheque bouncing which were pending in any court, before this Ordinance
came in force, will be transferred to a court with appropriate jurisdiction.

If the payee has filed a complaint against the drawer of a bounced cheque 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 branch 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.

MENS REA NOT REQUIRED FOR OFFENCE UNDER S. 138

The objective of Parliament was to strengthen the use of cheques, distinct from other negotiable
instruments, as mercantile tender and therefore it became essential for Section 138 to be freed
from the requirement of proving mens rea [guilty state of mind]. This has been achieved by
deeming the commission of an offence dehors mens rea not only under Section 138 but also by
virtue of the succeeding two sections. Section 139 24 carves out the presumption that the holder
of a cheque has received it for the discharge of any liability. Section 140 clarifies that it will not

24
Section 139 of the N.I Act,1881

23
be available as a defence to the drawer that he had no reason to believe, when he issued the
cheque, that it would be dishonoured25.

PUNISHMENT:
In criminal law, commission of offence is one thing and prosecution is quite another.
Commission of offence is governed by Section 138 of the Act. Prosecution is governed
by Section 142 26of the Act. It is also noteworthy that Section 138 while making dishonour of a
cheque an offence punishable with imprisonment and fine, also provides for safeguards to protect
drawers of such instruments where dishonour may take place for reasons other than those arising
out of dishonest intentions. It envisages service of a notice upon the drawer of the instrument
calling upon him to make the payment covered by the cheque and permits prosecution only after
the expiry of the statutory period and upon failure of the drawer to make the payment within the
said period.
Section 138 was enacted to punish unscrupulous drawers of cheques who, though purport to
discharge their liability by issuing cheque, have no intention of really doing so. Apart from civil
liability, criminal liability is sought to be imposed by the said provision on such unscrupulous
drawers of cheques. However, with a view to avert unnecessary prosecution of an honest drawer
of the cheque and with a view to give an opportunity to him to make amends, the prosecution
under Section 138 of the Act has been made subject to certain conditions. These conditions are
stipulated in the proviso to Section 138.27
Either or both civil and criminal complaints can be filed. In case of a criminal complaint, the
drawer of the cheque will be punished with:-

1. Maximum imprisonment for 2 years;

2. Fine which may extend to twice the amount of the cheque; or
3. Both

In case someone wants to go for civil proceeding, a money recovery suit has to be filed under
Order 37 of Civil Procedure Code within 3 years of the date of cause of action. The drawer of the

25 Dashrath Rupsingh Rathod v. State of Maharashtra, (2014) 9 SCC 129

26 Section 142 of the N.I Act,1881
27 C.C. Alavi Haji v. Palapetty Muhammed, (2007) 6 SCC 555.

24
cheque will be ordered to pay the full amount of the cheque and the interest accrued from the
date of suit to the date of decree. The choice is on the plaintiff. If a sufficiently large amount is
involved it is advisable to file both

COMPOUNDING OF OFFENCE:

Section 14728 makes offence punishable under the provisions of NI Act compoundable. If the
original complainant comes to the Court and says that he is withdrawing himself from
prosecution on account of compromise and he has compounded the matter, then the conviction
and sentence have to be set aside. No formal permission to compound the offence is required29.
Though compounding requires consent of both parties, even in absence of such consent, the
court, in the interests of justice, on being satisfied that the complainant has been duly
compensated, can in its discretion close the proceedings and discharge the accused.30 As the
offences under the Act are compoundable, they can be settled using the Alternative Dispute
Resolution Mechanism.

DEATH OF ACCUSED:

Proceedings in the complaint alleging offence under section 138 cannot be initiated against legal
heirs of the person who had issued the cheque.31 Criminal liability is not transferred to the
descendants or legal heirs of the person who had issued the cheque being the subject matter of
complaint under Section 138 of NI Act.32

28 Section 147 of the N.I Act,1881

29 Rameshbhai Sombhai Patel v. Dineshbhai Achalanand Rathi, 2004 SCC OnLine Guj 469.
30
Meters and Instruments (P) Ltd. v. Kanchan Mehta, (2018) 1 SCC 560.

31 AIR 2007 (DOC) 58 (P&H) ; 2006 (3) BANK J 327 (P&H)

32 Shrimati Neena Chopra v. Mahendra Singh Vaishya and Anr AIR2012MP22

25
LANDMARK JUDGEMENTS:
1. In M/s Meters and Instruments Private Limited & Anr. v. Kanchan Mehta,33 Two-
Judge Bench of Supreme Court made some key observations regarding dishonor of
cheque cases and also issued directions for speedy disposal of cheque cases under Section
138 of NI Act.

Use of modern technology for speedy disposal of cases– The Court took into consideration use
of modern technologies for enabling speedy disposal of cases under Section 138 of NI Act and
noted that use of modern technology needs to be considered not only for paperless Courts but
also to reduce overcrowding of Courts. There appears to be need to consider categories of cases
which can be partly or entirely concluded “online” without physical presence of the parties by
simplifying procedures where seriously disputed questions are not required to be adjudicated.
Traffic challans may perhaps be one such category.

Atleast some number of Section 138 cases can be decided online. If complaint with affidavits
and documents can be filed online, process issued online and accused pays the specified amount
online, it may obviate the need for personal appearance of the complainant or the accused. Only
if the accused contests, need for appearance of parties may arise which may be through Counsel
and wherever viable, video conferencing can be used. Personal appearances can be dispensed
with on suitable self-operating conditions.

2. Canara Bank vs Canara Sales Corporation & Ors34.

The Supreme Court while analyzing the Supreme Court’s role in the case stated that “when a
cheque which is presented for encashment contains a forged signature the bank has no authority
to make payment against such a cheque. The bank would be acting against law in debiting the
customer with the amounts covered by such cheques.’

33 (2018) 1 SCC 560.

34
1987 AIR 1603,

26
 3. Dalmia Cement (Bharat) Ltd vs M/S.Galaxy Trades & Agencies Ltd.35

The Supreme Court in the case while stressing on the object behind enactment of Section 138 of
NI Act stated that the provision was 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. The law relating to negotiable instrument is the law of commercial world legislated to
facilitate the activities in trade and commerce making provision of giving sanctity to the
instruments of credit which could be deemed to be convertible into money and easily passable
from one person to another. In the absence of such instruments, including a cheque, the trade and
commerce activities, in the present day would, are likely to be adversely affected as it is
impracticable for the trading community to carry on with it the bulk of the currency in force.

The negotiable instruments are in fact the instruments of credit being convertible on account of
legality of being negotiated and are easily passable from one hand to another. To achieve the
objectives of the Act, the legislature has, in its wisdom, thought it proper to make such
provisions in the Act for conferring such privileges to the mercantile instruments contemplated
under it and provide special penalties and procedure in case the obligations under the instruments
are not discharged. The laws relating to the Act are, therefore, required to be interpreted in the
light of the objects intended to be achieved by it despite there being deviations from the general
law and the procedure provided for the redressal of the grievances to the litigants.

4. Dayawati v. Yogesh Kumar Gosain36

The Delhi High Court took into account the question whether an offence under Section 138,
which is a criminally compoundable case, could be settled by mediation. The Court held that
even though an express statutory provision enabling the criminal court to refer the complainant
and accused persons to alternate dispute redressal mechanisms has not been specifically provided
by the Legislature. The Code of Criminal Procedure ("Cr.P.C.") does permit and recognize
settlement without stipulating or restricting the process by which it may be reached. Thus, there

35
AIR 2000 SC 761
36
2018ALLMR(Cri)161

27
is no bar to utilizing the alternate dispute mechanisms including arbitration, mediation,
conciliation (recognized under Section 89 of Civil Procedure Code, 19083) for the purposes of
settling disputes which are the subject matter of offences covered under Section 320 of the
Cr.P.C. It also stated the proceedings under Section 138 of the Act is distinct from other criminal
cases and are really in the nature of a civil wrong which has been given criminal overtones.

5. Manjula G. vs. Manjula B.T.37

The Karnataka High Court held that in so far as the oral evidence is concerned, the complainant
had failed to make out that she had capacity of advancing huge loan of Rs. 5,00,000/- to the
accused. The court below was right in holding that unless the above facts are proved,
presumption cannot be drawn under Section 139 of the N.I. Act. The accused had rebutted the
presumption under Section 139 of NI Act in respect of the existence of legally enforceable debt
by placing sufficient evidence. The Court below has rightly held that complainant has failed to
prove the guilt of the accused beyond all reasonable doubt and the accused clearly established
the case stating that Ex. P1, cheque has been misused by the complainant.

37
2018(2)Crimes580(Karnt.)

28
 INTRODUCTION OF THE LAW FIRM:

A.K .Law Chambers is one of the Bangalore’s leading law firms. The firm provides
various services like Real estate & property lawyer services, Cyber lawyer services, Divorce,
Court marriage & family lawyer services, Civil lawyer services, Trade and Industrial dispute
lawyers services, Criminal Law services etc.

Like any other firm this firm also has several junior advocates, it engages several juniors
who are willing to practice law and enroll themselves , the firm also provides a great opportunity
to all the students studying law by engaging them as interns and guiding them in every way
possible so that they are familiar with the practical approach as well.

Working at A.K.Law Chambers, under the guidance of Mr.Nischal Dev, Legal Counsel
was an enriching and nourishing experience. I would like to express my sincere gratitude to him
for encouraging and leading me to learn about a whole new subject; for providing his splendid
insight in various fields; for guiding me, correcting me and mentoring me despite his
extraordinarily busy schedule. All of this has been extremely valuable for my project both
theoretically and practically.

The case taken up for study is a live case and it is currently at trial stage. The case is filed
in the Court of the 58th Additional Chief Metropolitan Magistrate, (Mayohall) At Bengaluru.
During my internship, I was given various legal propositions to research on with respect to this
case. The report would now explain the legal propositions under the case with various case laws.
I would also analyse the application of Negotiable Instruments Act, 1881 to the cases instituted
before 1st September, 2018.

29
 CASE STUDY:

IN THE COURT OF THE 58TH ADDITIONAL CHIEF METROPOLITAN MAGISTRATE,

(MAYOHALL) AT BENGALURU

C.C.No.52252/2017

BETWEEN:

Sri. S. Ameer ……..Complainant

AND

Mrs. Priya Ravichandra ……………Accused

FACTS OF THE CASE:

1. The complainant here is an advocate by name Mr. Ameer who is representing his client Mr.
Raju @ Lal Bihari. Lal Bihari is an interior decorator undertaking decorating works.

2. The accused namely Priya had entrusted the interior decoration of her bungalow at J.P Nagar,
Bangalore to the client of complaint. The complainant’s client had completed the work entrusted
to him and in this connection the accused was due and liable to pay a sum of ₹9 Lakhs and
thereafter accused failed to pay said amount.

3. Hence the complainant’s client had filed a complaint under Section 200 of Code of Criminal
Procedure- C.C no. 13435/2015 on the file of CMM court, at Bangalore against accused for
offence punishable under Section 420 and 506B of IPC.

4. The complainant contends that during pendency of criminal case, the same was referred to
Lok Adalat for settlement and accordingly the parties have agreed for amicable settlement and
accused had thereby agreed to pay ₹ 3,00,000 to complainant’s client5.

5. To fulfill this, the accused issued a cheque bearing No. 159467 dated 10-1-2019 for 3 lakh
drawn on Bank of Maharashtra, Basavanagudi Branch, Bangalore in favour of the complainant
and accused assured the complainant that said cheque will be honoured without fail.

30
6. The complainant submits that as per the instructions of the accused he presented the cheque
for encashment through his banker i.e., State Bank Of India, Sulthanpalya Branch, Bangalore,
but to the shock of the complainant the said cheque got bounced due to insufficient balance.
Immediately the complainant informed the accused about the dishonor of cheque issued by him
and demanded him to pay said sum of ₹3 lakh.

7. As the accused failed to repay the said sum, the complainant got issued a legal notice to the
complainant. Inspite of the notice served, the accused neither replied to the said notice nor repaid
the cheque amount.

8. The accused has issued above cheque to discharge the debt due by him. The accused by not
making arrangements to honor the said cheque has committed an offence punishable under
Section 138 of the Negotiable Instruments Act, 1881.

Arguments of the accused:

1. The complainant made all false allegations against the accused that she has committed
offences punishable under section 138 of Negotiable Instruments Act, 1881 and Section 420 of
IPC.

2. She contends that she does not have any relationship with the complainant and that there is no
legally enforceable debt against her. She contends that she adequately compensated the
complainant’s client for the work he carried out in cash.

4. She states that she neither appeared before the court C.C. no 13435/2015 including Lok adalat
proceedings specifically records her absence.

5. She states that no such cheque or any other instrument to draw amounts had been handed over
to the complainant at any point of time as there was no transactions of any kind with the
complainant or under the guide of any authorisation by Mr. Lal Bihari to collect any instrument
on his behalf.

7. She states that the cheque which is the subject matter of this complaint does not belong to her.
She states that the signature is not hers. She further states that she does not hold any account in
the Bank Of Maharashtra, Basavangudi Branch Bank from which the alleged cheque was drawn.

31
8. On receiving legal notice from complainant. She also raised a complained before jurisdiction
police JP Nagar Police Station fearing the misuse of any fraudulent account opened in her name
in Bank Of Maharashtra.

9. She also states that she wrote a letter to the bank manager of Bank of Maharashtra. She also
filed an RTI application addressing Bank Of Maharashtra officials seeking for information
relating to whether an account was opened in her name i.e. Priya Ravichandra. No response was
received from bank officials.

11. She contends that complainant has been playing fraud on her by filing a complaint against
her. The complainant filed above complaint using a cheque which does not belong to her.

12. She states that Raju did not complete the work to her satisfaction. Also she has never drawn
any cheque in favour of your client as alleged by him in your notice and there is absolutely no
legally enforceable debt or liability to discharge from her end. Therefore, looking at any angle
the provisions of section 138 of the Negotiable Instruments Act,1881 will not attract.

The case is currently at the trial stage.

QUESTIONS OF LAW INVOLVED:

I. What is effect of the complaint on the accused when the cheque does not belong to the
accused.
II. Can Lok Adalat pass an award during settlement proceedings when any party is absent.
III. When the accused denies his signature on the cheque , can he make an application under
Section 45 of the Indian evidence Act,1872 for expert opinion on handwriting.
IV. Does Negotiable Instruments Amendment Act, 2018 apply to complaints instituted before
1st September, 2018.

32
 I. WHAT IS EFFECT OF THE COMPLAINT ON THE ACCUSED WHEN THE
CHEQUE DOES NOT BELONG TO THE ACCUSED.

Section 139 Negotiable Instruments Act, 188138 provides for presumption in favour of the
holder:

It shall be presumed, unless the contrary is proved, that the holder of a cheque received the
cheque of the nature referred to in section 138 for the discharge, in whole or in part, of any debt
or other liability.

“The effect of these presumptions is to place the evidential burden on the accused of proving that
the cheque was not received by the complainant towards the discharge of any liability. Because
both sections 138 and 139 require that the court shall presume the liability of the drawer of the
cheques for the amounts for which the cheques are drawn…it is obligatory on the courts to raise
this presumption in every case where the factual basis for the raising of this presumption had
been established. It introduced an exception to the general rule as to the burden of proof in
criminal cases and shifts the onus on to the accused.39”

Once the execution of cheque is admitted, Section 139 creates a presumption that the holder of a
cheque receives the cheque in discharge, in whole or in part, of any debt or other liability. 40This
presumption is no doubt rebuttable at trial but there is no gainsaying that the same favours the
complainant and shifts the burden to the drawer of the instrument (in case the same is
dishonoured) to prove that the instrument was without any lawful consideration.41

Note: Presumption under Section 139 is frequently read with Section 118 providing
presumption of consideration, presumption as to date on the instrument, etc.

When an accused has to rebut the presumption under Section 139, the standard of proof for doing
so is that of “preponderance of probabilities”. Therefore, if the accused is able to raise a probable
38
Section 139 Negotiable Instruments Act
39 AIR 2001 SUPREME COURT 38974
40 Basalingappa v. Mudibassapa, 2019 SCC OnLine SC 491.
41 Laxmi Dyechem v. State of Gujarat, (2012) 13 SCC 375.

33
defence which creates doubt about the existence of a legally enforceable debt or liability, the
prosecution can fail. The accused can rely on the materials submitted by the complainant in order
to raise such a defence and it is conceivable that in some cases the accused may not need to
adduce evidence of his own.42

43
In Hiten P. Dala's case, the Supreme Court held that because both sections 138 and 139
require that the Court “shall presume” the liability of the drawer of the cheques for the amounts
for which the cheques are drawn, it is obligatory on the Court to raise this presumption in every
case where the factual basis for the raising of the presumption had been established. Paragraphs
21 and 22 of the judgment need to be noted and they read as under:

“(21) Because both Sections 138 and 139 require that the Court “shall presume” the liability
of the drawer of the cheques for the amounts for which the cheques are drawn, as noted
in State of Madras v. A. Vaidyanatha Iyer, AIR 1958 SC 61, it is obligatory on the Court to
raise this presumption in every case where the factual basis for the raising of the presumption
had been established, “it introduced an exception to the general rule as to the burden of proof
in criminal cases and shifts the onus on to the accused” (ibid). Such a presumption is a
presumption of law, as distinguished from a presumption of fact which describes provisions
by which the Court “may presume” a certain state of affairs. Presumptions are rules of
evidence and do not conflict with the presumption of innocence, because by the latter all that
is meant is that the prosecution is obliged to prove the case against the accused beyond
reasonable doubt. The obligation on the prosecution may be discharged with the help of
presumptions of law or fact unless the accused adduces evidence showing the reasonable
possibility of the non-existence of the presumed fact.

(22) In other words provided the facts required to form the basis of a presumption of law
exists, no discretion is left with the Court but to draw the statutory conclusion, but this does
not preclude the person against whom the presumption is drawn from rebutting it and proving
the contrary. A fact is said to be proved when, “after considering the matters before it the
Court either believes it to exist or considers its existence so probable that a prudent man

42 Rangappa v. Sri Mohan, (2010) 11 SCC 441.

43
Hiten P. Dalal vs Bratindranath Banerjee 2001 (3) CTC 243 (SC

34
 ought, under the circumstances of the particular case, to act upon the supposition that it
exists”. Section 3: Evidence Act. Therefore, the rebuttal does not have to be conclusively
established but such evidence must be adduced before the Court in support of the defence
that the Court must either believe the defence to exist or consider its existence to be
reasonably probable, the standard of reasonability being that of the ‘prudent man.”

The Act contains provisions raising presumptions as regards the negotiable instruments under
Section 11844(a) of the Act as also under Section 139 thereof. The said presumptions are
rebutable ones, Whether presumption rebutted or not would depend upon the facts and
circumstances of each case. The Supreme Court clearly laid down in catena of decisions that the
standard of proof in discharge of the burden in terms of Section 139 of the N.I. Act being the
preponderance of a probability, the inference thereof can be drawn not only from the material
brought on record but also from the reference to the circumstances upon which the accused relies
upon. The burden to rebut the presumptions on the accused is not as high as that of the
prosecution.

While referring to the case of Kumar Exports vs. Sharma Carpets45, the Supreme Court held
that the accused may adduce evidence to rebut the presumption, but mere denial regarding
existence of debt shall not serve any purpose.

With reference to the facts of the present case, the Court noted that the trial court as well as the
Appellate Court having found that cheque contained the signatures of the accused and it was
given to the appellant to present in the Bank of the presumption under Section 139 was rightly
raised which was not rebutted by the accused. The accused had not led any evidence to rebut the
aforesaid presumption.

It was also stated that in the event the accused is able to raise a probable defence which creates
doubt with regard to the existence of a debt or liability, the presumption may fail.

44
Section 118 of the Negotiable Instruments Act, 1881
45
AIR2009SC1518

35
It can be concluded that it is presumed under section 139 that the cheque belongs to the accused
unless the accused rebuts the presumption. The accused has to go through trial and only after
adducing evidence to rebut presumption he will be absolved from the liability under section 139
of N.I Act, 1881.

In the present case in hand, though the cheque and the bank account does not belong to the
accused, the court under Section 139 of the N.I Act raises a presumption that the cheque has
been issued by the drawer in discharge of legally enforceable debt. The accused has to rebut this
presumption by adducing evidence to prove her case. In the current situation, the accused should
prove that neither the bank account nor the cheque belongs to her. For this purpose she can
request the court to call for witness of the Bank Manager. If it is proved that the cheque and
account doesnot belong to the accused, she will be absolved from liability under Section 138 of
N.I. Act, 1881.

II. CAN LOK ADALAT PASS AN AWARD DURING SETTLEMENT

PROCEEDINGS WHEN ANY PARTY IS ABSENT?

Issuing a cheque which is dishonoured is crime in India. But we hardly see any people being
punished for bouncing of cheques. People are dissuaded to trust bank cheques. This all because
courts in India are awefully overburdened with dishonoured cheque cases.

NALSA along with other Legal Services Institutions conducts Lok Adalats. Lok Adalat is one of
the alternative dispute redressal mechanisms, it is a forum where disputes/cases pending in the
court of law or at pre-litigation stage are settled/ compromised amicably. Lok Adalats have been
given statutory status under the Legal Services Authorities Act, 1987. Under the said Act, the
award (decision) made by the Lok Adalats is deemed to be a decree of a civil court and is final
and binding on all parties and no appeal against such an award lies before any court of law. If the
parties are not satisfied with the award of the Lok Adalat though there is no provision for an
appeal against such an award, but they are free to initiate litigation by approaching the court of
appropriate jurisdiction by filing a case by following the required procedure, in exercise of their
right to litigate.

36
Nature of Cases to be Referred to Lok Adalat

1. Any case pending before any court.

2. Any dispute which has not been brought before any court and is likely to be filed before the
court.

Provided that any matter relating to an offence not compoundable under the law shall not be
settled in Lok Adalat.

Offences under Negotiable Instruments Act, 1881 have been made compoundable. Therefore,
they can be referred to ADR Mechanism by the courts under Section 89 of Code of Civil
Procedure, 1908.46

Section 19 of the Legal Services Authorities Act, 1987 provides for organisation of Lok Adalats
and Lok Adalats have been conferred jurisdiction as per Sub-section (3) of Section 19 to
determine and arrive at a compromise or settlement between the parties to a dispute in respect of
any matter falling within the jurisdiction of any civil, criminal or revenue Court or any Tribunal
constituted under any law for the time being in force in the area for which the Lok Adalat is
organised.

The jurisdiction, power and function of the Lok Adalats has been categorically explained by
Apex Court in the case of State of Punjab and Anr. v. Jalour Singh and Ors.47

‘Lok Adalats have no adjudicatory or judicial functions. Their functions relate purely to
conciliation. A Lok Adalat determines a reference on the basis of a compromise or settlement
between the parties at its instance, and puts its seal of confirmation by making an award in terms
of the compromise or settlement. When the Lok Adalat is not able to arrive at a settlement or
compromise, no award is made and the case record is returned to the Court from which the
reference was received, for disposal in accordance with law. No Lok Adalat has the power to
'hear' parties to adjudicate cases as a Court does. It discusses the subject-matter with the parties
and persuades them to arrive at a just settlement. In their conciliatory role, the Lok Adalats are
guided by the principles of justice, equity and fair play. When the LSA Act refers to

46 Section 89 of Code of Civil Procedure, 1908.

47
AIR 2008 SC 1209

37
'determination' by the Lok Adalat and 'award' by the Lok Adalat, the said Act does not
contemplate nor require an adjudicatory judicial determination, but a non-adjudicatory
determination based on a compromise or settlement, arrived at by the parties, with guidance and
assistance from the Lok Adalat. The 'award' of the Lok Adalat does not mean any independent
verdict or opinion arrived at by any decision-making process. The making of the award is merely
an administrative act of incorporating the terms of settlement or compromise agree by parties in
the presence of the Lok Adalat, in the form of an executable order under the signature and seal of
the Lok Adalat..48

In Kishan Rao and Ors. Vs. Bidar District Legal Services Authority and Ors 49, the Karnataka
High Court held that “The Lok Adalat is required to see that it shall with utmost effort on or
settlement between the parties, be guided by the legal principles of justice, equity and fair play.
When it is so, it s required to first examine and see whether all the parties to the litigation have
entered into a compromise or settlement. Therefore, it is its duty to see that all parties present
before it. If, some parties have entered into compromise and others are not willing for settlement,
then the Lok Adalat has no jurisdiction to pass the decree, because the dispute remains
uncompromised. Therefore, all parties must be present before it and notice need be issued to all
the parties or it has to verify if that compromise or settlement has been arrived at between all
parties to the litigation. “This gives further support for my view that the award could not be
passed, unless and until all parties to the suit have entered into a compromise or settlement and
such award is bad and illegal for not being in accordance with the requirements of law under
Section 20 of the Legal Services Authorities Act, 1987, is not binding and is not effective.
Further, no notices have been given to defendants 1 and 3 when the matter was transferred to a
Lok Adalat. The award, as such, can be said to be illegal, null and void and inoperative to
determine the dispute between the parties.”

There is no restriction on the power of Lok Adalat to pass an award based on the compromise
arrived at between the parties in a case referred by a criminal court under Section 138 of the N.I.
Act, and by virtue of the deeming provision it has to be treated as a decree capable of execution
by a civil court. Even if a matter is referred by a criminal court under Section 138 of the

48 State of Punjab and Anr. v. Jalour Singh and Ors (2008) 2 SCC 660.
49 Kishan Rao and Ors. Vs. Respondent: Bidar District Legal Services Authority and Ors. AIR2001Kant407

38
Negotiable Instruments Act, 1881 and by virtue of the deeming provisions, the award passed by
the Lok Adalat based on a compromise has to be treated as a decree capable of execution by a
civil court.50

In the present case in hand, the Lok Adalat passed an award even when the accused was absent.
The records of the Lok Adalat proceedings record the absence of the accused. In this situation,
after referring to various judgements, it can be said that the award passed by Lok Adalat is void
and bad in law. The presence of parties is essential in proceedings. For there is no settlement
there can be no award. Therefore, the main contention of the complainant that parties agreed and
settled for payment of Rupees three lakh is baseless.

III. WHEN THE ACCUSED DENIES HIS SIGNATURE ON THE CHEQUE , CAN
HE MAKE AN APPLICATION UNDER SECTION 45 OF THE INDIAN
EVIDENCE ACT,1872 FOR EXPERT OPINION ON HANDWRITING?

45. Opinions of experts51.—When the Court has to form an opinion upon a point of foreign law
or of science or art, or as to identity of handwriting or finger impressions, the opinions upon that
point of persons specially skilled in such foreign law, science or art, or in questions as to identity
of handwriting or finger impressions are relevant facts. Such persons are called experts.

If the accused denies his signature on the cheque an application under section 45 of the evidence
Act can be made to the court for reference of the disputed signature on the cheque for the experts
opinion.

In Kalyani Baskar (Mrs.) v. Ms. Sampoornam52 wherein the Hon'ble Apex Court has observed
in the following manner:

“Power of the Magistrate in sending a document for experts opinion in respect of the
dishonoured cheque u/s.138 of the Negotiable Instruments Act, 1881. Prayer by the accused
to send that cheque for opinion of the handwriting expert to ascertain the genuineness of the
signature on it. Magistrate should have granted such a request unless he considers that the

50 K.N. Govindan Kutty Menon vs C.D. Shaji

51
Section 45 of Indian Evidence Act, 1872
52
2007(93)DRJ401

39
 object of the accused is vexatious or delaying the criminal proceedings, accused was entitled
to rebut the case of the complainant. Cheque on which complainant relied upon for initiating
criminal proceedings against the accused furnished good material for rebutting that case. By
declining to send the said document for examination and opinion of the handwriting expert,
the Magistrate deprived the accused of an opportunity of rebutting it. Accused
could not be convicted without an opportunity being given to her to present her evidence.
Denial of the said opportunity would lead to an unfair trial u/s.45 of Indian Evidence Act.

It is essential that rules of procedure designed to ensure justice should be scrupulously

followed and the courts should be jealous in seeing that there is no breach of them. Fair trial
includes a fair and proper opportunities allowed by law to prove the innocence of the accused
adducing evidence in support of the defence is a valuable right and denial of such right
means denial of fair trial.”
53
In another ruling between Ajay Kumar Parmar v. State of Rajasthan, wherein the Hon'ble
Apex Court at paragraph 23 has opined in the following manner:

“23. The opinion of a handwriting expert is fallible/liable to error like that of any other
witness, and yet, it cannot be brushed aside as useless. There is no legal bar to prevent
the Court from comparing signatures or handwriting, by using its own eyes to compare the
disputed writing with the admitted writing and then from applying its own observation to
prove the said handwritings to be the same or different, as the case may be, but in doing so,
the court cannot itself become an expert in this regard and must refrain from playing the role
of an expert, for the simple reason that the opinion of the Court may also not be conclusive.
Therefore, when the court takes such a task upon itself, and findings are recorded solely on
the basis of comparison of signatures or handwritings, the court must keep in mind the risk
involved, as the opinion formed by the Court may not be conclusive and is susceptible to
error, especially when the exercise is conducted by one, not conversant with the subject. The
court, therefore, as a matter of prudence and caution should hesitate or be slow to base its
findings solely upon the comparison made by it. However, where there is an opinion whether
of an expert, or of any witness, the court may then apply its own observation by comparing
the signatures, or handwritings for providing a decisive weight or influence to its decision.”

53
AIR2013Delhi633

40
 On perusal of the above said rulings, it is clear that ultimately, it is the discretion of the Court
either to refer the disputed signature to the expert or to compare the signature by itself under
Section 73 of the Indian Evidence Act. But under what circumstances, the Court can do that
particular exercise is the question that has to be examined meticulously. In the above said
rulings, the principles of natural justice and opportunity to the accused have been highlighted and
further under what circumstances, cheque may not be sent for expert's opinion is also narrated in
the decisions quoted above. Ultimately, the Courts have to find out whether the cheque in dispute
requires to be sent for expert's examination. It all depends upon the facts and circumstances of
each case and the Court has to exercise a sound judicious discretion.

In Smt. Nasreen Pasha v. Sri Malik Ahmed54, the Karnataka High court reiterated that

“Before adverting to the appreciation of the facts in this case, it is also necessary to note here as
to under what circumstances, the Court can reject such prayer of the accused for sending the
disputed signature for expert's opinion. It is made clear from ample number of rulings that when
the Court is of the opinion that in the evidence adduced by the parties, there is sufficient
convincing and conclusive material showing admission of the accused regarding his signature on
the disputed document. It is also to be noted that when it is established that the accused has been
making all sorts of delaying tactics to protract the proceedings and for any other reason or the
defence is very casual and baseless and where the Court can draw an inference with regard to the
conclusiveness of his signature. Under such circumstances, by exercising judicious discretion,
the Court can refuse to grant the request of the accused, otherwise normally adhering to the
principles of natural justice, the Court should always lean in favour of granting such prayer for
sending the disputed signature to the experts.

I have also come across that some Judges are not sending the disputed signatures to the experts,
though accused has requested and made a ground, on the reason that, it would consume lot of
time and delay the trial, for which accused is not responsible. Mere such delay itself is not
sufficient to give a go bye to the principles of natural justice.”

In the present case inhand, the accused denies his signature on the cheque and also the opening
of any such bank account in Bank of Maharashtra. The accused has a right to defend himself and

54 ILR 2016 Kar 3732

41
for this purpose, he can request the court to refer the signatures to expert opinion. The accused in
this case requested the court for referring the signatures to handwriting expert. The application is
pending in the court of Law.

IV. DOES NEGOTIABLE INSTRUMENTS AMENDMENT ACT, 2018 APPLY TO

COMPLAINTS INSTITUTED BEFORE 1ST SEPTEMBER, 2018.

The Negotiable Instruments (Amendment) Act, 2018 was recently passed by parliament and
came into effect from September 1, 2018. It has introduced substantial changes to the Negotiable
Instruments Act, 1881 which may have a significant impact on commerce and the ability of
parties to transact through negotiable instruments.

Section 143A and section 148 have been inserted through the amendment act.

Section 143A empowers the courts, in a summary trial or a summons case, to direct the Drawer
to pay interim compensation to the Complainant, in two scenarios:

(i) at the time the Drawer pleads not guilty to the accusations made in the complaint; or
(ii) in any other case, at the time of framing of the charge

The court can direct the Drawer to pay interim compensation of up to 20% of the amount of the
dishonoured cheque, within 60 days from the date of its order, or within a further period of 30
days, if the Drawer provides sufficient cause for such delay. If the Drawer fails to pay interim
compensation within this time frame, the court may recover the said amount as a fine under
Section 421 of the Code of Criminal Procedure, 1973.

If the drawer of the cheque is acquitted, the Court shall direct the complainant to repay to the
drawer the amount of interim compensation, with interest at the bank rate as published by the
Reserve Bank of India, prevalent at the beginning of the relevant financial year, within sixty days
from the date of the order, or within such further period not exceeding thirty days as may be
directed by the Court on sufficient cause being shown by the complainant.

The amount of fine imposed under section 138 or the amount of compensation awarded under
section 357 of the Code of Criminal Procedure, 1973, shall be reduced by the amount paid or
recovered as interim compensation under this section.
42
Section 148 of the Act has been amended to state that if the Drawer appeals against an order of
conviction, the appellate court may order the Complainant to deposit with such court, a minimum
of 20% of the fine or compensation awarded by the lower court. This amount is in addition to the
interim compensation paid by the Drawer under Section 143A of the Act. The amended
provisions also give appellate courts the discretion to release this amount deposited by an
appellant Drawer, to the Complainant, during the pendency of the appeal.

However, if the Drawer is acquitted, the court has the authority to direct the Complainant to
repay the interim compensation to the Drawer, along with interest at rates prescribed by the RBI
at the beginning of the relevant financial year. This amount is payable by the Complainant within
60 days from date of the order directing the Complainant to make payment, or within a further
period of 30 days, if the Complainant provides sufficient cause for the delay.

JUDGEMENTS:

The High Court of Bombay in its judgement, Ajay Vinodchandra Shah vs. The State of
Maharashtra & Anr55 has held that Sections 143-A and 148 of the Amended Act are applicable
to the cases pending in trial as well as in appeal, which have been filed prior to 1st September
2018.

The High Court of Bombay held that, “The word ‘retrospective’ is to be understood or read with
meaningful, purposive interpretation. It is incorrect to accept that it is to be made not applicable
to the cases which are filed only after 1.9.2018 and not applicable to the cases pending earlier in
the trial as well as appellate Court. Huge number of cases under section 138 of the Act are
pending in the Courts. In these cases, if the plea is recorded or charge is not framed, then, the
trial Court can invoke its powers under section 143A after 1.9.2018 and can impose interim
compensation which shall not exceed 20% of the amount of cheque. Same is the case in appeals.
If the appeals are pending, the Court can pass interim orders under section 148…“.

Thus, the High Court of Bombay had allowed the writ petitions partly by imposing a condition
on the accused to deposit 20% of the total amount of the compensation. Further, the stipulated

55 2019ALLMR(Cri)2447

43
time of 60 days to deposit the said amount was extended till 90 days, till the pendency of the
litigation. The orders of putting conditions of cancellation of bail or suspension of sentence in the
event of non-payment were additionally set aside.

The Punjab and Haryana High Court through its judgement, Ginni Garments & Anr vs. Sethi
Garment & Anr 56had a different interpretation of the law and has held that the Section 143-A of
the Amended Act has no retrospective effect whereas the Section 148 of the Amended Act will
apply to the pending appeals pending on date of enforcement of this provision.

The High Court was of the view that Section 143-A of the Amended Act is not shown to be a
step in furtherance to the procedure of the trial authorizing the trial court to pass any order,
having consequences against the accused qua the steps of the trial;in case of non-payment of
interim compensation.

The High Court stated that, “Since the provisions for recovery of fine or compensation from the
appellant/convict already existed in the existing procedure relating to the recovery, therefore, the
provision introduced vide Section 148 of the Act; which relates only to recovery of amount
partly, as interim measure, has to be treated purely procedural only, which is otherwise also
beneficial for the appellant as compared to the pre-existing provisions. Hence it has to be held
that provision of Section 148 of the Act shall govern all the appeals pending on date of
enforcement of this provision or filed thereafter.”

The High Court thus dismissed the petitions which were challenging the order of the appellate
Court, directing the appellant to deposit 20% or more of the amount of fine or compensation as
awarded by the trial Court.

The Supreme Court bench comprising Justice Uday Umesh Lalit and Justice Vineet Saran
in G.J.Raja vs. Tejraj Surana 57categorically held that Section 143A is prospective in operation
and that the provisions can be applied or invoked only in cases where the offence under Section
138 of the Act was committed after the introduction of said Section 143A in the statute book.

56
2019(2)RCR(Criminal)833

57
MANU/SC/1002/2019

44
“In our view, the applicability of Section 143A of the Act must, therefore, be held to be
prospective in nature and confined to cases where offences were committed after the introduction
of Section 143A, in order to force an Accused to pay such interim compensation.

In the ultimate analysis, we hold Section 143A to be prospective in operation and that the
provisions of said Section 143A can be applied or invoked only in cases where the offence Under
Section 138 of the Act was committed after the introduction of said Section 143A in the statute
book. Consequently, the orders passed by the Trial Court as well as the High Court are required
to be set aside. The money deposited by the Appellant, pursuant to the interim direction passed
by this Court, shall be returned to the Appellant along with interest accrued thereon within two
weeks from the date of this order.”

However the court held that Section 148 of the Negotiable Instruments Act, 1881 will have
retrospective effect.

Considering the Supreme Court decision, the court cannot direct the accused to pay interim
compensation to the complainant under section 143A of the Act as the section applies only to
complaints instituted after 1st September, 2018.

45
 CONCLUSION

Section 138 of the Negotiable Instruments Act, reflects the anxiety of the legislature to usher in a
new healthy commercial morality through the instrumentality of the penal law. The Section 138
was inserted with the objective to discourage the dishonest activity of issuing cheques which
were later dishonoured for insufficient funds. The court is now taking mediation and other efforts
like online proceedings to have speedy disposal in this modern era. Besides the Negotiable
Instrument Act, judgements given by High Court and Supreme Courts are the law that need to be
referred for bouncing of cheques.

Though insertion of the penal provisions have helped to curtail the issue of cheque lightheartedly
or in a playful manner or with a dishonest intention and the trading community now feels more
secured in receiving the payment through cheques.

With respect to the case study, it can be concluded that the complainant has a weak case as the
legally enforceable debt he claims to exist is nothing but based on an award which holds no good
in law as the accused was absent during Lok Adalat proceedings. This shows that the Principles
of Natural Justice were not followed and thus violates the right to fair trial. Also the cheque and
account doesnot belong to the accused which can be proved by examination of the Bank manager
and handwriting expert. The examination of the Bank manager and consideration of handwriting
expert’s opinion will act as rebuttal of presumption under Section 139 of the Act.

With reference to the above arguments and various judgements of High Court and Supreme
courts, I would like to conclude that the accused has a stronger case against the complainant. If
the accused is able to proof himself beyond reasonable doubt, he will be absolved from the
liability under Section 138 of Negotiable Instruments Act,1881.

46
 RECOMMENDATIONS

 The number of Magistrates exclusively meant for cheque bounce cases should be
doubled. Special Courts can be set up to deal with such cases.
 The Government must provide for funds needed to meet the costs involved in increasing
the number of Magistrates, their supporting staff and other infrastructure.
 There should be no more than fifty matters before a judge on a particular day. Twenty-
five in the morning session and twenty-five in the afternoon session.
 Since it is a quasi judicial proceeding, the intent is that the Court should take innovative
approach and not succumb to technicalities. Technicalities should be found and turned
down with firm hand.

47
Bibliography:

1. The Negotiable instruments Act, 1881 by Avtar Singh

2. Banking and Negotiable instruments by Avtar singh
3. Law of evidence by Dr.V.Krishnamachari
4. Criminal Procedure Code, 1973
5. Manupatra
6. SCC Online
7. Wikipedia
8. Various articles etc.

48