BUSINESS LAWS

CRITICAL ANALYSIS OF SECTION 138, NEGOTIABLE

INSTRUMENTS ACT, 1881”

University Institute of Legal Studies

Panjab University

B.Com. LL.B. (Hons.) – 8th SEMESTER

2020-21

Presented To: Presented By:

Dr. Supreet Sakshi Mangla
Teacher In-Charge 191/17 – Section
D

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 ACKNOWLEDGEMENT

Any work requires the effort of many people and this is no different. First of all,
I want to express my heartiest thanks to my teacher Dr. Supreet, for firstly
making me understand the contents of my topic and then giving me a wonderful
opportunity to present this topic in form of an assignment. Her support and
teaching helped me a lot to complete this assignment.

I would also like to thank my friends who were always available to me for help
and also helped me collect data for my project through various sources. They
also provided me with material I needed and made my work as easy as possible.

Regardless of anything, I wish to express my gratitude to those who may have

contributed to this assignment, even though anonymously.

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 TABLE OF CONTENTS

 Table of cases ................................................................................... 03

 Introduction ...................................................................................... 04
 Section 138 of the NI Act, 1881 ....................................................... 05
 Ingredients of the provision .............................................................. 08
 Jurisdiction ....................................................................................... 10
 Notice ............................................................................................... 13
 Who can file a complaint? ................................................................ 14
 Procedure .......................................................................................... 18
 Punishment ....................................................................................... 18
 Other general provisions related to offence u/section 138 ............... 19
 Decriminalization of Section 138 ..................................................... 21
 Conclusion ........................................................................................ 23
 Bibliography ..................................................................................... 24

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 TABLE OF CASES

 C.C. Alavi Haji v. Palapetty Muhammed ............................................ 14

 D.K. Goel v Kamal Sujit ...................................................................... 13
 Dashrath Rupsingh Rathod v. State of Maharashtra ............................ 09
 Dilip vs. Kotak Mahindra Company Ltd. ............................................. 18
 Hammanna S. Nayak v Vijay Kumar Kalani ....................................... 13
 Harman Electronics Pvt. Ltd. v National Panasonic India Pvt. Ltd. .... 10
 Indian Bank Association & Ors. v Union of India & Ors. .................... 17
 K Mahadevan v Y Venkatesh & Anr .................................................... 15
 K. Bhaskaran v Shankaran .................................................................... 10
 K.R. Indira v Dr. G Adinarayana .......................................................... 13
 Laxmi Dyechem v State of Gujarat ....................................................... 06
 Malyuri Pulse Mills & Ors. V Union of India & Ors ............................ 09
 MSR Leathers v. S. Palaniappan ........................................................... 08
 Parameswaran Unni v. G. Kannan ........................................................ 14
 Purushottamdas Gandhi vs. Manohar Deshmukh ................................. 20
 Rangappa v Sri Mohan .......................................................................... 19
 Surinder Singh Deswal v Virender Gandhi ........................................... 21

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 INTRODUCTION

A negotiable instrument is a written order or unconditional promise to pay a

fixed sum of money on demand or at a certain time. A negotiable instrument
can be transferred from one person to another. Once the instrument is
transferred, the holder obtains full legal title to the instrument. The transfer
should be unrestricted and in good faith. Therefore, a negotiable instrument is a
document guaranteeing the payment of a specific amount, either on demand, or
at a set time, with the payer named on the document. The Negotiable
Instruments Act in Section 13 recognizes promissory note, bill of exchange and
cheque to be negotiable instruments.

Over the years there have been many important changes in the way cheques are
issued/bounced/dealt with. Commercial globalization 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 bounce dispute. The object of
Sections 138-142 of the Negotiable Instruments Act, 1881 is to promote the
efficacy of banking operations and to ensure credibility in transacting business
through cheques.

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 SECTION 138, NI ACT 1881

Chapter XVII of the Negotiable Instruments Act provides for penalties in case
of dishonour of certain cheques for insufficiencies of funds in the accounts.
Sections 138 to 147 deal with these aspects.

Section 138 of the Act states the dishonouring of a cheque for reasons stated
like insufficiency of funds, stale cheque, post-dated cheque, alteration,
irregular signature, frozen account and stop payment instruction, etc. and
criminalises it. 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 as was held in Laxmi Dyechem v. State of Gujarat.1 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 was
introduced as a criminal offence in 1989 by way of an amendment to the
Negotiable Instruments Act, 1881. Non-payment of dues under this section is a
non-cognizable offence.

Chapter XVII has been amended by the Negotiable Instruments (Amendment

and Miscellaneous Provisions) Act, 2002. The amendments have provided the
drawer with more time to send notice, made the punishment for the offence
more stringent, given power to court for condonation of delay in filing of
complaint, excluded liability of government nominated directors, made

1
(2012) 13 SCC 375.

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provision for summary trial of cases under the Chapter and time bound
disposal of cases, have relaxed the rules of evidence, and made the offences
under the Act compoundable. Further Chapter XVII amended by the
Negotiable Instruments (Amendment) Act, 2015. The amendment focused on
clarifying the jurisdiction related issues for filing cases for offence committed
under section 138 of the Negotiable Instruments Act, 1881. Section 138 as it is
at present after coming into force of the Negotiable Instruments (Amendment
and Miscellaneous Provisions) Act, 2002 –

 PROVISION –
“138. Dishonour of cheque for insufficiency, etc., of funds in the account.—
Where any cheque drawn by a person on an account maintained by him with a
banker for payment of any amount of money to another person from out of that
account for the discharge, in whole or in part, of any debt or other liability, is
returned by the bank unpaid, either because of the amount of money standing
to the credit of that account is insufficient to honour the cheque or that it
exceeds the amount arranged to be paid from that account by an agreement
made with that bank, such person shall be deemed to have committed an
offence and shall, without prejudice to any other provision of this Act, be
punished with imprisonment for a term which may be extended to two years, 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;
(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
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 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 purposes of this section, “debt of other liability” means
a legally enforceable debt or other liability.”

 INGREDIENTS OF THE PROVISION –

The ingredients of the offence as contemplated under Section 138 are –

1. The cheque has to be drawn by the accused i.e., the drawer on a bank
account which is maintained by him.
2. The amount of money mentioned in the cheque is for discharging the
liability either wholly or partially.
3. Dishonour of cheque means that it is returned unpaid due to lack of
sufficient funds in the accused’s account or because the amount listed in
the cheque exceeds the arrangement made with the bank. The offence is
said to be committed at the exact moment the cheque is returned unpaid
to the holder or drawer of the cheque.

The proviso to Section 138 also lays down certain conditions which are
important for this provision to come into play –

1. The cheque has to be presented to the bank within six months from the
date it was drawn or within the period its validity, whichever is earlier.
2. Fact of dishonour be informed to the drawer by notice within 30 days in
writing.
3. Drawer of cheque must fail to make payment within 15 days of receipt of
the notice.

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It was held in MSR Leathers v. S. Palaniappan,2 that it is only upon the
satisfaction of all the three conditions mentioned above and enumerated under
the proviso to Section 138 as clauses (a), (b) and (c) thereof that an offence
under Section 138 can be said to have been committed by the person issuing
the cheque. Thus, an offence within the contemplation of Section 138 is
complete with the dishonour of the cheque but taking cognizance of the same
by any court is forbidden so long as the complainant does not have the cause of
action to file a complaint in terms of clause (c) of the proviso read with Section
142 as was held in Dashrath Rupsingh Rathod v. State of Maharashtra.3

Every criminal offence requires a certain state of mind to exist before a person
can be held guilty of the commission of such offence i.e., the mens rea. The
presence of the requisite mens rea is essential for charging a person even
though the same may not have been provided under the section. However, the
same can be specifically excluded by the legislature. Such a specific exclusion
has been made by the legislature in case of offences under the present chapter
to achieve the purpose for which the chapter has been incorporated, i.e., to
prevent issue of cheques by unscrupulous persons without having sufficient
funds to meet them. The exclusion of mens rea can be gathered from Section
138 itself, which provides that “& such person shall be deemed to have
committed an offence”. Thus, if the conditions stated therein are satisfied, the
court has to deem that the offence has been committed, regardless of the state
of mind of the drawer. A mere honest belief of the drawer that the cheque
would be paid, or that he had no reason to believe that the cheque would not be
paid, on due presentment to the drawee-bank is no defence to a charge under s
138.4 In Malyuri Pulse Mills & Ors. v Union of India & Ors. 5 the court held

2
(2013) 1 SCC 177.
3
(2014) 9 SCC 129.
4
Section 140, Negotiable Instruments Act
5
(1996) 86 Comp Cas 121.

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that for an offence under Section 138 mens rea is not essential. The section
brings into operation the rule of strict liability.

 JURISDICTION –
The jurisdiction in case of an offence u/s 138 has been laid down in Section
142. But before discussing that, one must look onto the various court rulings
that were made to confer jurisdiction on the courts. Different views have been
expressed by courts where cause of action arises in cases of offences under
Section 138.

 K. BHASKARAN vs. SHANKARAN, AIR 1999 SC 3762:

The Supreme Court in the case of K. Bhaskaran v Shankaran6 in 1999 had

given jurisdiction to initiate the prosecution at any of the following places:

1. Where cheque is drawn.

2. Where payment had to be made.
3. Where cheque is presented for payment
4. Where cheque is dishonored.
5. Where notice is served to drawer.

In this context, Section 178 (d) of the Code of Criminal Procedure, 1973
should be mentioned which states as follows:

“Where the offence consists of several acts done in different local areas, it may
be enquired into or tried by a court having jurisdiction over any of such local
areas.”

Thus, the court held that, if the five different acts were done in five different
locations, then, 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 Negotiable Instruments Act, 1881.

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 HARMAN ELECTRONICS PVT. LTD vs. NATIONAL PANASONIC
INDIA PVT. LTD., (2009) 1 SCC 720:

This case in 2009 diluted the ruling of the Bhaskaran case and a new face to the
existing law was given. The appellant in this case hailed from Chandigarh and
had issued a cheque which was returned dishonoured. The cheque originally
was issued to the drawee/complainant in Chandigarh where he had an account
in a bank branch. Notice of payment for the dishonoured cheque was issued
from the head office of the complainant in Delhi to the accused office in
Chandigarh. Due to failure on the part of the drawer a complaint was filed in
Delhi. When the case came before the lower courts as well as high court,
emphasis and reliance was laid down on 'K. Bhaskaran Case' and finally
coming to a conclusion so as to that Delhi Court also has the jurisdiction. The
drawer contended that Chandigarh court had the jurisdiction to try the case but
his contention was dismissed, finally, leading to an appeal to Supreme Court.
The following points were laid down by the court –

1. There is a world of difference between issue of a notice, on one hand, and

receipt, on the other. Issue of notice didn’t give rise to a cause of action
while receipt did.
2. Notice is one of the essential ingredients for maintaining a complaint u/s
138. It is only on receipt of notice that the accused/ drawer at his own
peril can refuse to pay the amount. Clauses (b) and (c) should be read
together.
3. The Court held that if presentation of the cheque or issue of notice was to
constitute a good reason for conferring jurisdiction on the court, it would
lead to harassment of the drawer, thereby calling for the need to strike a
balance between the rights of the parties to the transaction.
4. Therefore, the court held that the court derives its jurisdiction when a
cause of action arises and jurisdiction can't be conferred on or for any act

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 of omission on the part of the accused. Also, held, issuance wont but
communication will give rise to cause of action. Hence, Delhi Court will
not have jurisdiction to try the case.

The key difference between the two cases i.e., Harman Electronics Case and
Bhaskaran Case is the interpretation of the clause “giving of notice” in proviso
(b) of section 138. The former showed a strict approach and held that the
phrase means “receipt of notice”. On the other hand, the latter showed a liberal
approach and held the meaning of the phrase to mean “sending of notice”. It
thus correctly addressed the rampant misuse of the liberal interpretation in
Bhaskaran’s case.

 DASHRATH RUPSINGH RATHOD vs. STATE OF MAHARASHTRA

& ANR., (2014) 9 SCC 129:

After the Bhaskaran case, it was felt at large that the law in its wide amplitude
allowed the complainant a lot of flexibility which led to a rampant abuse of the
law. This caused adversity to the drawer of cheques. It gave the payee
unrestricted power to the payee to singlehandedly confer jurisdiction on a place
of his convenience, consequently, leading to harassment as the payer had, at
times, no concern or relation with the distant places where the cheque was
issued or which had no link to the transaction or drawer.

Thereafter, the apex court in 2014 in the abovementioned case, had the
occasion to consider, whether the views expressed by the Hon’ble Court in
Bhaskaran case, were sound or not, and whether complaints under Section 138
could be maintained at a place other than the place where the drawee bank is
situated?

Answering the question in the negative the Hon’ble Court held that an offence
under Section 138 is committed no sooner the cheque issued on an account
maintained by the drawer with a bank and representing discharge of debt or a

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liability in full or part is dishonoured on the ground of insufficiency of funds or
on the ground that the same exceeds the arrangements made with the banker.
Prosecution of the offender and cognizance of the commission of the offence
is, however, deferred by the proviso to Section 138 till such time the
complainant has the cause of action to institute such proceedings. The Supreme
Court of India in this case observed that, the proviso to Section 138 of the
Negotiable Instruments Act, 1881 does not constitute ingredients of the offence
punishable under Section 138 of the Negotiable Instruments Act, 1881.

Thus, the court, in nutshell, in this case observed as follows:

1. Once the cause of action accrues to the complainant, the jurisdiction of

the court to try the case will be determined by reference to the place
where the cheque is dishonoured.
2. Place of issuance of statutory notice, or, place of deposit of cheque in a
bank by payee, or, place of receipt of notice (demanding payment) by
accused, would not confer jurisdiction upon courts of that place; what is
important is whether drawee bank which dishonoured the cheque is
situated within the jurisdiction of the court taking cognizance.

Therefore, by this case the position of territorial jurisdiction of Section 138

changed and a complainant could only file a complaint on the dishonour of the
cheque where the cheque is dishonoured by the bank on which it is drawn.

 NOTICE –

No express or specific form of notice has been prescribed and therefore, the
form in which the notice has to be issued is immaterial. 6 But, the notice
however has to be in writing7 and an oral communication of dishonour to the
drawer does not satisfy the requirements of the provision. 8 There is no form
prescribed for the notice, but its legal requirements must be strictly met. To say
6
K.R. Indira v Dr. G Adinarayana, (2003) 8 SCC 300.
7
Hammanna S. Nayak v Vijay Kumar Kalani, (2001) 1 BC 526
8
D.K. Goel v Kamal Sujit, (2002) 1 BC 518.

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that the notice of demand should not contain anything more than what is due
under the cheque is to straitjacket it to a formula that would nullify the tenor
and language of the provision, which must be construed on its terms to
conserve the object of the statute. Where the notice indicates only the fact of
return of cheque but neither the date of bouncing nor the date of receipt of such
information by the payee from the bank is mentioned, the notice cannot be said
to be a notice under s 138 as vital information was missing from the notice.

The object of sending a notice is to give chance to the drawer to rectify his
omissions, and to protect an honest drawer. The object of a notice indicating
the factum of dishonour of the cheque is to give an opportunity to the drawer to
make the payment within 15 days, so that it will not be necessary for the payee
to proceed against him in any criminal action, even though the bank
dishonoured the cheques.

When the notice is sent by registered post by correctly addressing the drawer of
the cheque, the mandatory requirement of issue of notice in terms of clause (b)
of proviso to Section 138 of the Act stands complied with. It is needless to
emphasize that the complaint must contain basic facts regarding the mode and
manner of the issuance of notice to the drawer of the cheque. 9 It is clear from
Section 27 of the General Clauses Act, 1897 and Section 114 of the Evidence
Act, 1872 that once notice is sent by registered post by correctly addressing to
the drawer of the cheque, the service of notice is deemed to have been affected.
However, the drawer is at liberty to rebut this presumption. 10 The Supreme
Court in a catena of cases has held that when a notice is sent by registered post
and is returned with postal endorsement ‘refused’ or ‘not available in the
house’ or ‘house locked’ or ‘shop closed’ or ‘addressee not in station’ or
‘intimation served’, due service has to be presumed.

 WHO CAN FILE A COMPLAINT?

9
C.C. Alavi Haji v. Palapetty Muhammed, (2007) 6 SCC 555
10
N. Parameswaran Unni v. G. Kannan, (2017) 5 SCC 737

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A payee or holder in due course of the cheque is a competent person to file a
complaint u/s 138. The complainant must be a corporeal person capable of
making physical appearance in the court. A company should be represented by
a person. A complaint can also be filed by Power of Attorney holder.

 PROCEDURE –

1. A legal notice is to be issued to the drawer within 30 days of dishonour

of the cheque with all the relevant facts. If the drawer fails to make the
payment within 15 days of the receipt of notice, then the complainant can
file a case u/s 138.

2. Section 142 creates a bar against taking cognizance of the offence u/s 138
except upon complaint in writing by the payee or holder in due course. It
states –

“142. Cognizance of offences. — (1) Notwithstanding anything

contained in the Code of Criminal Procedure, 1973 (2 of 1974)—

(a) no court shall take cognizance of any offence punishable under

section 138 except upon a complaint, in writing, made by the payee
or, as the case may be, the holder in due course of the cheque;
(b) such complaint is made within one month of the date on which the
cause of action arises under clause
(c) of the proviso to section 138: Provided that the cognizance of a
complaint may be taken by the Court after the prescribed period, if
the complainant satisfies the Court that he had sufficient cause for not
making a complaint within such period…”

A complaint under section 138 has to be a private complaint within

section 200 of the CrPC before a competent magistrate. The police
cannot investigate and file chargesheet. A complaint u/s 138 being a

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 private complaint the magistrate trying it should not refer it to the police
for investigation u/s 156 (3) of the CrPC.11

3. The complainant or his authorized agent should appear in the witness box
and provide relevant details for filing the case. Once the Magistrate is
satisfied that there is proper compliance of the proviso to Section 138 and
jurisdictional conditions are fulfilled, the Magistrate shall issue summons
to accused.

4. 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.

5. 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.

6. 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.

7. 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 witnesses in his support. Accused and his
witnesses will be cross examined by the complainant.

8. 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,

11
K Mahadevan v Y Venkatesh & Anr., (1994) 79 Comp Cas 202.

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 similarly if the accused is convicted, he can file an appeal in the Sessions
Court.

As given under Section 143, the trial of cases under the chapter has to be in a
summary manner. However when at the commencement of or in the course of,
a summary trial under this section, it appears to the magistrate that the nature
of the case is such that a sentence of imprisonment for a term exceeding one
year may have to be passed or that it is, for any other reason, undesirable to try
the case summarily, the magistrate shall, after hearing the parties, record an
order to that effect and thereafter, recall any witness who may have been
examined and proceed to hear or rehear the case in the manner provided by the
said Code. The trial of cases under the chapter is to be continued from day to
day until its conclusion, unless the court finds the adjournment of the trial
beyond the following day to be necessary for reasons to be recorded in writing
and for expeditious conduct and an endeavour to conclude the trial within six
months from the date of filing the complaint. Section 145(1) of the Act permits
the recording of evidence of complainant on affidavit. Even evidence of
accused and witnesses can be recorded on affidavit. This was for expedite
disposal of the cases. The bank slips are held as a primary evidence and
admissible directly.

In the case of Indian Bank Association & Ors. v Union of India & Ors.,12
general directions have been given by the Apex Court –

1. Metropolitan Magistrate/ Judicial Magistrate on the day when the

complaint under Section 138 of the Act is presented, shall scrutinize the
complaint and, if the complaint is accompanied by the affidavit, and the
affidavit and the documents, if any, are found to be in order, take
cognizance and direct issuance of summons.

12
AIR 2014 SC 2528.

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 2. They should adopt a pragmatic and realistic approach while issuing
summons. Summons must be properly addressed and sent by post as well
as by e-mail address got from the complainant. Court in appropriate
cases, may take the assistance of the police or the nearby court to serve
notice to the accused. For notice of appearance, a short date be fixed. If
the summons is received back unserved, immediate follow up action be
taken.
3. Court may indicate in the summons that if the accused makes an
application for compounding of offences at the first hearing of the case
and, if such an application is made, Court may pass appropriate orders at
the earliest.
4. Court should direct the accused, when he appears to furnish a bail bond,
then ensure his appearance during trial and ask him to take notice under
Section 251, Cr.P.C. to enable him to enter his plea of defence and fix the
case for defence evidence, unless an application is made by the accused
under Section 145(2) for recalling a witness for cross-examination.
5. The court concerned must ensure that examination in chief, cross-
examination and re-examination of the complainant must be conducted
within three months of assigning the case. The court has option of
accepting affidavits of the witnesses, instead of examining them in Court.
Witnesses to the complainant and accused must be available for cross-
examination as and when there is direction to this effect by the Court.
 PUNISHMENT

After the amendment of 2002 the imprisonment that may be imposed may
extend to two years, while fine may extend to twice the amount of cheque.
However, the trial is conducted in summary way, then Magistrate can pass
sentence of imprisonment not exceeding one year and amount of fine
exceeding Rs.5,000/- There is no limitation for awarding compensation.

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The drawer of the cheque cannot be allowed to take dishonour of the cheque
issued by him light heartedly. The punishment has to be proportionate with the
cheque amount. There cannot be any straight jacket formula laid down for the
awarding of sentence and it varies from facts and circumstances of each case.

In case of Dilip vs. Kotak Mahindra Company Ltd.,13 it was enunciated that
the amount of compensation sought to be imposed must be reasonable and not
arbitrary. Before issuing a direction to pay compensation the capacity of the
accused to pay the same must be judged.

 OTHER GENERAL PROVISIONS RELATED TO OFFENCE /s 138

1. Presumption - There is presumption under Section 118 and Section 13of

the NI Act in favour of holder of the cheque. Until contrary is proved, it
will be presumed by the court that in favour of the holder that it was
drawn for discharge of debt or liabilities. This presumption is rebuttable
and the accused can rebut it by cross-examination of the prosecution
witness. Complainant is not absolved from liability to show that cheque
was issued for legally enforceable debt or liability. Burden on accused in
such case would not be as light as it is in the cases under sec.114 of the
Evidence Act. Under section 139, the presumption raised in favour of
holder of the cheque is that it has been issued for the discharge of some
debt or liability and not the existence of a legally enforceable debt or
liability. If a cheque is dishonoured, the accused will be presumed guilty
unless he proves himself to be innocent.
The following points laid down in Rangappa v Sri Mohan,14 are
relevant:

13
2008 (1) Mh L.J. 22.
14
(2010) 11 SCC 441

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  When an accused has to rebut the presumption under Section 139 of
the Negotiable Instruments Act, 1881, the standard of proof for doing so
is “preponderance of probabilities”.
 If the accused is able to establish a probable defence which creates
doubt about the existence of a legally enforceable debt or liability, the
prosecution can fail.
 If the accused (or the drawer) of a cheque neither raises a probable
defence nor ably contests the existence of a legally enforceable debt or
other liability, then, obviously the statutory presumption under Section
139 of the Negotiable Instruments Act, 1881 regarding commission of
the offence would stand fortified.

2. Post-Dated Cheques – According to the Thomas Dictionary of Banking, a

“post-dated” cheque is a cheque which is dated subsequent to the actual
date on which it is drawn, and which is issued before the date it bears.
Many times, cheques are issued bearing no date or post-dated cheques.
The holder of the cheque enters the date, and thereafter, cheques are
presented.
The Hon'ble Bombay High Court in case of Purushottamdas Gandhi
vs. Manohar Deshmukh,15 observed that inserting such date does not
amount to tampering or alteration but by delivery of such undated
cheque the drawer authorizes the holder to insert date and the period of 6
months for presentation of such cheque to the Bank would start from the
date which bears on the cheque.

3. Section 140 - Section 140 states that it shall not be a defence in a

prosecution for an offence under section 138 that the drawer had no
reason to believe when he issued the cheque that the cheque may be
dishonoured on presentment for the reasons stated in section 138. This

15
2007 (1) Mh.L.J. 210

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 was affirmed in the case of Dashrath Rupsingh Rathod v State of
Maharashtra.16

4. The Negotiable Instruments (Amendment) Act, 2018 – In 2018, two new

sections were inserted in the act –
Section 143A and Section 148. Section 143-A of the amended Act
empowers any court while trying an offence for dishonour of a cheque to
direct the drawer, who is the issuer of the cheque, to pay interim
compensation to the complainant. The amount of compensation payable
cannot exceed 20% of the amount as stated in the cheque. This amount
has to be paid within a stipulated time period of 60 days from the date of
the order passed by the court, or further within the extended period of 30
days, as may be directed by the court on showing sufficient cause for the
delay caused.
According to the Amended Act, Section 148 states that in the event of
the conviction of the drawer of the cheque, if the drawer proceeds to file
an appeal, the appellant court has the power to order the drawer of a
cheque to deposit an amount. This deposited amount in such case has to
be a minimum of 20% of the fine or compensation awarded by the
Magistrate Court in the appeal preferred against his/her conviction.
However, if the appellant is acquitted, then the Court shall direct the
complainant to repay to the appellant the amount so released, with
interest. This section is supposed to have a retrospective effect i.e., it
would apply to complaints which were filed prior to 1 September, 2018.
This was laid down in the case of Surinder Singh Deswal v Virender
Gandhi.
 DECRIMINALIZATION OF SECTION 138:

16
(2014) 9 SCC 129.

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The Ministry of Finance vide its Statement of Reason dated 08.06.2020 has
announced various steps to provide relief from the economic stress caused due
to the Covid-19 pandemic. One such proposal was the amendment of 19 acts to
decriminalize multiple minor economic offences, including the offence under
section 138 of the Negotiable Instruments Act, 1881. While inviting these
comments, the Finance Ministry has made it clear that these actions to be taken
for decriminalization of minor offences are expected to go a long way in
improving the ease of doing business and helping unclog the court system and
prisons. The proposal immediately attracted widespread opposition from both
within the legal fraternity, and without. The main reason for this proposal is to
increase the foreign investment in our country and will help in boosting the
economy of the country during this condition.

The objective of Section 138 of negotiable instruments Act is to promote the

efficiency of banking operations and to ensure credibility in transacting
business through cheques. With the coronavirus outbreak in the country, the
economy is going down and to curb this situation it is proposed to
decriminalize section 138 of Negotiable Instruments Act. There are heavy
debates and discussions going on decriminalizing section 138 or not because
this section effects the public at large. There is no doubt that it will bring an
ease to the business but on the other hand it has some bad impact on the
business sector as well for example the creditors will lose the credibility in
transactions through cheques. The main idea behind the proposal it is the ease
of business and attracting investors. In the report, the following principles were
propounded and certain things are to be kept in mind –

 Decriminalizing will decrease the burden on businesses man and will

attract confidence among the investors.
 Increase in the economic growth, public interest and national security.

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  Mens rea plays an important role in attracting criminal liability.
Therefore, it is important to evaluate the nature of the non-
compliance.
 The habitual nature of non-compliance has to be kept in mind.
Negligence must be differentiated with the non-compliance on regular
basis.

CONCLUSION

Thus, the Negotiable Instruments Act, 1881 deals with all the provisions of the
negotiable instruments which play an indispensable role in the modern world
of commercial transactions which is due to the development and growth in the
fields of banking, trading and various other commercial sectors. This Act
contains liabilities, duties and rights of both the drawer and the drawee. This
Act gives clarity to the businesses, trades and many other sectors. The recent
steps undertaken by the judiciary and the changes brought by the legislature are
steps in the right direction. But there is a need to realize the commercial
realities in India and further expedite the process of recovery to discourage
delays caused by the accused, unnecessary adjournments and frivolous appeals.
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Courts in India are overburdened and lack basic infrastructure to deal with
dishonoured cheque cases. It is vital that people have faith in the integrity and
honesty of the system. However, reliability of cheques in commercial dealings
has been eroded to a great extent. Dishonour of cheque causes financial loss,
inconvenience and injury to the payee.

BIBLIOGRAPHY

 The Negotiable Instruments Act 1881.

 https://www.mondaq.com/india/trials-appeals-
compensation/433334/section-138-negotiable-instruments-act-1881--an-
in-depth-analysis (last accessed on 14 June 2021)
 https://www.mondaq.com/india/trials-appeals-
compensation/814178/negotiable-instruments-amendment-act-2018-
retrospective-or-not- (last accessed on 13 June 2021)

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  http://mja.gov.in/Site/Upload/GR/Title%20NO.26(As%20Per
%20Workshop%20List%20title %20no26%20pdf).pdf (last accessed on
14 June 2021)
 Sections 138-142 of the Negotiable Instruments Act, 1881 available at
https://blog.ipleaders.in/section-138-142-negotiable-instruments-act-
1881/ (last accessed on 13 June 2021)
 Section 138 of Negotiable Instruments Act: Overview available at
https://www.mondaq.com/india/financial-services/812822/section-138-
of-negotiable-instruments-act-overview (last accessed on 12 June 2021)
 https://www.scconline.com/blog/post/2019/05/07/dishonour-of-cheque-s-
138-ni-act-and-allied-sections/ (last accessed on 12 June 2021)
 https://www.lexology.com/library/detail.aspx?g=c1f86808-e817-4ed7-
ab7a-b6361d5c3c64 (last accessed on 13 June 2021).

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