What to do When the Cheque Gets Bounced

Introduction:

In the current era, when crimes have increased to a surprising rate, crimes in banking appear as one of the major forms. India is also not untouched from such crimes. Bouncing of cheques is one such crime which occurs almost everyday in some or the other bank throughout India infact throughout the world. For a lawyer the process after the cheque gets bounced is not so difficult but for a layman this entire process can be a hectic job especially after the amendments in 2010, this process has become much more tedious for layman. This paper is an attempt to simplify this entire process for a layman while taking into consideration the recent amendments.

The First Step:

This entire process starts when you come to know that the cheque which you submitted for encashment gets dishonored which you can know due to remarks like account closed, refer to the drawer or stop payment of the cheque. The first thing that a layman should know after the cheque is dishonored is about cause of action. ‘Cause of action’ means every fact which, if traversed, it would be necessary for the plaintiff to prove in order to support his right to a judgment of the Court.[1] When the cheque gets bounced the first thing you need to do is to send a statutory notice to the person who has signed the cheque informing him that the cheque drawn by him has been dishonored. The notice should be sent through a registered post and should be duly acknowledged.[2] If the offender is a company then the notice should be sent collectively to the person who has signed the cheque i.e. the drawer of the cheque and to the company.[3]

Notice and Cause of Action:

Now after the notice has been sent, the concept of cause of action comes into picture. The cause of action arises, after the issue of statutory notice and non-compliance with demand meaning thereby that cause of action would arise when the notice has been received by the drawer of the cheque but still payment has not been made within the prescribed time. The notice should be send within 15 days after the receipt of the return memo indicating dishonor of cheque. If the first notice is not received then the second notice should be sent. Then there could be three situations which could arise.

Firstly the second notice may be received in case of which cause of action will begin only after the second notice is received. Secondly the first notice is received but still a second notice is sent, in such a case cause of action would begin from the very date when the first notice was received.[4] Thirdly the second notice like the first one is not received in which case the cause of action would arise from the date when the first notice was sent.[5] If the notice is received by the drawer then he is supposed to make the payment within 15 days of the receipt of the notice. If he does not make payment within this grace period of 15 days, cause of action would arise.[6]

Requirements under s 138:

After the case of action has arisen, the next step in this process would be to approach the court and file a suit against the drawer for securing conviction under Negotiable Instruments Act, 1881 in the Court of Judicial Magistrate of the First Class or of Metropolitan Magistrate.[7] For securing conviction under s 138 read with s 141 the following facts are required to be proved before the Court of law:

1. That the cheque was drawn for payment of an amount of money for discharge of a debt/liability and the cheque was dishonored.
2. That the cheque was presented within the prescribed period.
3. That the drawee of the cheque made a demand for payment of the money by giving a notice in writing to the drawer within the stipulated period; and
4. That the drawer failed to make the payment within 15 days of the receipt of the notice.[8]

When to file the suit:

Then when the requirements to be proved are met, there are two main questions which need to be answered to simplify the process further the first one being that in which court should the suit under s 138 be filed and secondly that within what period a suit can be filed. Dealing with the second question a suit under s 138 can be filed within 45 days since the notice has been received. This period of 45 days would constitute the 15 days grace period within which the drawer was supposed to make the payment and a further period of 30 days within which suit has to be files.[9]

Condonation of Delay:

But a situation may arise where the drawee is not able to approach the court within this period of 45 days. The law still does not leave him remediless. In such a case the drawee can file an application for Condonation of delay in the court. This application had to be filed under s 5 of the Limitation Act, 1963 read with s 142(b) of the Negotiable Instrument Act, 1881. Also it would be necessary to prove in court the sufficiency of the cause of delay[10] and that the delay was not occasioned deliberately, or on account of culpable negligence, or on account of mala fides.[11]

Where to file the suit:

The position in this regard earlier was that a complaint under s 138 can be filed at any of the place:

1. Where the cheque was drawn.
2. Where the cheque was presented for encashment.
3. Where the cheque was returned unpaid by drawee bank.
4. Where notice in writing was given to drawer of cheque demanding payment.
5. Where drawer of cheque failed to make payment within 15 days of receipt of notice.^[12]

But since the amendments in 2001 and 2009 the position has changed. The Hon™ble Supreme Court in case of Harman Electronics (P) Ltd. and Anr. v. National Panasonic India Ltd.[13]  has held that the court ordinarily will have the jurisdiction only where the offence has been committed and therefore, the place where an offence has been committed plays an important role. Also, in terms of Section 177 of the Code of Criminal Procedure, 1973 every offence shall ordinarily be inquired into and tried by a court within whose local jurisdiction it was committed.

The departure from the judgment in K. Bhaskaran™s case was made for the first time in the case of with regards to the second point of the guidelines that is where the cheque was presented for encashment. The Supreme Court in case of Shri Ishar Alloy Steels Ltd. v. Jayaswals Neco Ltd[14] held that the bank referred to in clause (a) of the proviso to the Section 138 had reference to the drawee bank on which the cheque is drawn and not all banks where the cheque is presented for collection, including the bank of the payee in whose favor the cheque is issued. It, however, does not mean that the cheque is always to be presented to the drawer’s bank on which the cheque is issued but to attract the criminal liability of the drawer of the cheque such collecting bank is obliged to present the cheque in the drawee or payee bank on which the cheque is drawn within the period of six months from the date on which it is shown to have been issued. Therefore the second point should be read as at the place where the drawee bank is.

On this further elaboration has been done by the Supreme Court in 2006 and the Delhi High Court in 2009. The Delhi High Court in the case of Arinits Sales Pvt. Ltd. v. Rockwell  Plastic Pvt. Ltd. and Ors.[15] has reiterated the judgment laid down in Shri Ishar Alloy Steels Ltd™s case. The Supreme Court in the case of Musaraf Hossain Khan v. Bhagheeratha Engg. Ltd. and Ors.[16] held that sending of cheques does not form an integral part of ’cause of action’. Another very important point that was made clear in this particular case was that a Court will not have territorial jurisdiction merely because a company has a registered office within the jurisdiction of that Court.

Another major alteration was made in the case of Harman Electronics (P) Ltd. and Anr. v. National Panasonic India Ltd.[17] wherein the court held that a complaint cannot be filed at a place from where notice in writing has been given to drawer of cheque demanding payment. The court held that on the part of the payee he has to make a demand by “giving a notice” in writing. If that was the only requirement to complete the offence on the failure of the drawer to pay the cheque amount within 15 days from the date of such “giving”, the travails of the prosecution would have been very much lessened. But the legislature says that failure on the part of the drawer to pay the amount should be within 15 days “of the receipt” of the said notice. It is, therefore, clear that “giving notice” in the context is not the same as receipt of notice. And thus we reach to our second conclusion that point 4 as mentioned in the guidelines in K. Bhaskaran™s case stand amended and should be read as where notice demanding payment, given in writing by the drawee has been accepted by the drawer.

Criminal Prosecution:

Sec 138 of the Act states that person accused of committing an offence under s 138 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. A complaint can also be filed under s 482 of the Code of Criminal Procedure, 1973.

Sec 141 of the Act provides that if the offender is a company it will not be sparred merely because liability cannot be assigned to a particular person. The section states that 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.

But at the same time it provides for some defenses to the company where it can prove the defence and get rid of the liability under the Act. Another remedy available to the payee id that he may also initiate money recovery procedure in a jurisdictional civil court apart from prosecuting the drawer for criminal offence.

Conclusion:

The final position that we reach upon is that a complaint under s 138 can be filed at any of the place:

1. Where the cheque was drawn.
2. Where the drawee bank is.
3. Where the cheque was returned unpaid by drawee bank.
4. Where notice demanding payment, given in writing by the drawee has been accepted by the drawer.
5. Where drawer of cheque failed to make payment within 15 days of receipt of notice.

The entire process has been summed up in few pages but even if one step goes wrong then the entire process may demand a lot of time and money from the innocent party and therefore it becomes very necessary for a layman to take all these steps into consideration while approaching the court against bouncing of cheque.