Overview on Section 138 Of Negotiable Instruments Act, along with Judgments

A Cheque is a document which orders a bank to pay a particular amount of money from a person’s account to another individual’s or company’s account in whose name the cheque has been made or issued. The cheque is utilised to make safe, secure and convenient payments. It serves as a secure option since hard cash is not involved during the transfer process; hence the fear of loss or theft is minimized.

A cheque is a widely used method of payment and post-dated cheques are frequently used in various transactions in business life. Post-dated cheques are given to provide a certain accommodation to the drawer of the cheque. Therefore, it becomes necessary to ensure that the drawer of the cheque does not abuse the accommodation given to him.

The Negotiable Instruments Act, 1881 (“Act“) 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 transactions. If a party issues a cheque as a mode of deferred payment and the payee of the cheque accepts the same on the faith that he will get his payment on due date, then he should not suffer on account of non-payment.

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

The objective of sec 138 of NI Act is To promote the efficiency of banking operations and to ensure credibility in transacting business through cheques is mentioned in the case law Modi Cements Ltd. v. Kuchil Kumar Nandi[1]. And this Act was enacted and Section 138 of NI Act thereof incorporated with a specified object of making a special provision by incorporating a strict liability so far as the cheque, a negotiable instrument, is concerned. The law relating to negotiable instrument is the law of commercial world legislated to simplify 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.

The ingredients required for complying with Section 138 are as follows:

• a person must have drawn a cheque for payment of money to another for the discharge of any debt or other liability;
• that cheque has been presented to the bank within a period of three months;
• that cheque is returned by the bank unpaid, either because insufficient of funds or that it exceeds the amount arranged to be paid from that account by an agreement made with the bank;
• the payee makes a demand for the payment of the money by giving a notice in writing to the drawer within 15 days of the receipt of information by him from the bank regarding the return of the cheque as unpaid;
• The drawer fails to make payment to the payee within 15 days of the receipt of the notice.

Procedure to be followed for Section 138 of the Act:

• A legal notice is to be issued to the drawer within 15 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 the notice,with the concerned magistrate court within the jurisdiction.
• The complainant should appear and provide relevant details for filing the case. If the court is satisfied then summons will be issued to the accused.
• If accused abstains himself from appearing then the court may issue a bailable and non-bailable warrant .
• On appearance of accused, he may furnish a bail bond. In case he pleads guilty, the court will order punishment. If, denies the charges, the Complainant may present his evidence. The complainant will be cross examined by the accused.
• The accused will be given an opportunity to lead his evidence. Accused and his witnesses will be cross examined by the complainant.
• The last proceeding is arguments after which the court will pass a judgment. If accused is acquitted then the complainant can go on further appeal in the High Court, if the accused is convicted he can file an appeal in the Sessions Court.

It is to be noted that the offence under Section 138 of the Act, is now compoundable. Judgments regarding same are below:

In 2017, Delhi High Court in Dayawati v. Yogesh Kumar Gosain took into account the question whether an offence under Section 138, which is a criminally compoundable case, could be settled by mediation.² 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 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.

In Meters and Instruments (P) Ltd. v. Kanchan Mehta, the Honourable Supreme Court after taking into consideration the object of introducing Section 138 and other provisions of Chapter XVII of the Act, observed as under⁴:

“18. From the above discussion following aspects emerge:

18.1. Offence under Section 138 of the Act is primarily a civil wrong. Burden of proof is on accused in view presumption under Section 139 but the standard of such proof is “preponderance of probabilities”. The same has to be normally tried summarily as per provisions of summary trial under the Cr.P.C. but with such variation as may be appropriate to proceedings under Chapter XVII of the Act. Thus read, principle of Section 258 Cr.P.C.⁵ will apply and the Court can close the proceedings and discharge the accused on satisfaction that the cheque amount with assessed costs and interest is paid and if there is no reason to proceed with the punitive aspect.

18.2. The object of the provision being primarily compensatory, punitive element being mainly with the object of enforcing the compensatory element, compounding at the initial stage has to be encouraged but is not debarred at later stage subject to appropriate compensation as may be found acceptable to the parties or the Court.

18.3. Procedure for trial of cases under Chapter XVII of the Act has normally to be summary. The discretion of the Magistrate under second proviso to Section 143, to hold that it was undesirable to try the case summarily as sentence of more than one year may have to be passed, is to be exercised after considering the further fact that apart from the sentence of imprisonment, the Court has jurisdiction under Section 357(3) Cr.P.C.⁶ to award suitable compensation with default sentence under Section 64 IPC and with further powers of recovery under Section 431 Cr.P.C.⁷ With this approach, prison sentence of more than one year may not be required in all cases.

18.4. Since evidence of the complaint can be given on affidavit, subject to the Court summoning the person giving affidavit and examining him and the bank’s slip being prima facie evidence of the dishonour of cheque, it is unnecessary for the Magistrate to record any further preliminary evidence. Such affidavit evidence can be read as evidence at all stages of trial or other proceedings. The manner of examination of the person giving affidavit can be as per Section 264 Cr.P.C.⁸ The scheme is to follow summary procedure except where exercise of power under second proviso to Section 143 becomes necessary, where sentence of one year may have to be awarded and compensation under Section 357(3) is considered inadequate, having regard to the amount of the cheque, the financial capacity and the conduct of the accused or any other circumstances.”

Compounding of offence under section 138 of Negotiable Instruments act after conviction.

Negotiable Instruments Act , 1881 Section 138 ,147 Dishonour of cheque – Compounding offence – Parties have amicably settled matter – Continuation of further proceeding in the case shall only be an exercise in futility resulting in wastage of time – Order of conviction of accused, liable to be set aside and accused liable to be acquitted.

Criminal Procedure Code, 1973, Sections 320, 397 and 401 – Negotiable Instruments Act , 1881 Sections 138 and 147 Compounding of offence – Whether permissible in revision challenging convict ion – Held, yes – Resultantly, considering factual and legal position, compromise allowed and accused acquitted by setting aside conviction – Damodar S. Prabhu v. Sayed Babalal H. AIR 2010 Supreme Court 1907 and Sri Ashish Subba v. Manoj Kumar Agarwal 2018 (1) RCR (Criminal) 971, relied on.

Negotiable Instruments Act , 1881 Sections 138 and 147 Criminal Procedure Code, 1973, Sections 320, 397 and 401 r/w 482 – Dishonour of cheque – Compromise after conviction – Same sought in revision – Offence being compoundable under section 147 of the Act , permission to compound the offence granted by directing petitioner- convict to deposit 15% of the cheque amount with District Legal Services Authority.

Criminal Procedure Code, 1973, Sections 320 , 397 and 401 Negotiable Instruments Act , 1881, Section 138 Compromise after conviction – Permissibility in revision – As per S. 320 CrPC, the High Court may allow compounding of offences at the stage of revision also – Therefore, allowing the compounding of offences in view of the compromise between the parties, the revision petition accepted and the judgments passed by the Courts below set aside – Resultantly, the revisionist accused acquitted – Matter disposed of by directing that the compromise arrived at in the revision petition shall not have any effect upon pending RSA filed by the complainant against the revisionist – Revisionist directed to deposit 15% of the cheque amount with the High Court Legal Service Committee, within two weeks from today.

Criminal Procedure Code, 1973, Sections 320 , 397 and 401 Negotiable Instruments Act , 1881, Sections 138 and 147 Indian Penal Code, 1860, Section 420 Compromise of after conviction – Same sought in revision – Considering contentions of both the parties, permission to compound the offence granted and, thus, complaint u/s 138 of the Act and S. 420 IPC dismissed and the petitioner acquitted of the accusation of charge.

Jaswinder Singh v. State of Punjab and another 2011(7) RCR (Criminal) 2613 and Saroj Pande v. Grasim Cement Prop. G.C. Indus. Ltd. 2012 (5) RCR (Criminal) 377, Relied on.

Criminal Procedure Code, Section 320 – Negotiable Instruments Act , Sections 138 and 147 – Compounding of offence – Accused convicted under Section 138 of Negotiable Instruments Act and sentenced to 3 months S.I. and fine of Rs. 5000/- – Parties entering into compromise – Section 147 of the Negotiable Instruments Act , as amended, makes the offence compoundable – Parties allowed to compound the offence – Sentence of imprisonment set aside while that of fine maintained.

Negotiable Instruments Act , 1881 Sections 138 and 147 Dishonour of Cheque – Conviction and Sentence – Accused and complainant settled matter amicably by way of a Settlement Deed – Accused already paid entire cheque amount of Rs.98,000/- by way of Demand Draft in favour of complainant which duly accepted by complainant – Further complainant have no objection if offence under section 138 of NI Act is compound – Therefore, compounding offence as per provisions of section 147 of the Negotiable Instruments Act – Conviction and Sentence set aside.

Speedy Disposal

Negotiable Instruments Act , Sections 142 to 147 – Negotiable Instruments Act , Section 138 – Dishonour of cheque – Procedure for trial of cases under Section 138 of Negotiable Instruments Act – Sections 142 to 147 lay down a kind of a special code for the trial of offences under Chapter XVII of the Negotiable Instruments Act and Sections 143 to 147 were inserted in the Act by the Negotiable Instruments (Amendment and Miscellaneous Provisions) Act , 2002 to do away with all the stages and processes in a regular criminal trial that normally cause inordinate delay in its conclusion and to make the trail procedure as expeditious as possible without in any way compromising on the right of the accused for a fair trail.

Amendment 2015

Negotiable Instruments Act , 1881 Section 142 (2)(a) (as amended in 2015) – Dishonour of Cheque – Territorial jurisdiction to file complaint – Section 142 (2)(a), amended through the Negotiable Instruments (Amendment) Second Ordinance, 2015, vests jurisdiction for initiating proceedings for the offence under Section 138 of the Negotiable Instruments Act , inter alia in the territorial jurisdiction of the Court, where the cheque is delivered for collection (through an account of the branch of the bank where the payee or holder in due course maintains an account).

Negotiable Instruments Act , Sections 138 and 142 (2) – Dishonour of cheque – Complaint under Section 138 of Negotiable Instruments Act , without signature is maintainable when such complaint is verified by the complainant and the process is issued by the Magistrate after due verification – Complaint must necessarily be in writing and the complaint can be presented by the payee or holder in due course of the cheque and it need not be signed by the complainant – Held –

(1) Complaint under Section 142 (9) of Negotiable Instruments Act requires to be in writing as at the time of taking cognizance, the Magistrate will examine the complainant on oath and the verification statement will be signed by the complainant.

(2) Contention that the limitation period expired on the date of verification by Magistrate and thus complaint is thus not maintainable – Contention not tenable – Crucial date for computing the period of limitation is the date of filing of the complaint or initiating criminal proceedings and not the date of taking cognizance by the Magistrate. 2007(3) RCR (Criminal) 912 : 2007(4) RAJ 194 (SC) relied.

Negotiable Instruments Act , 1881 Sections 138 and 142 Dishonour of Cheque – Conviction – During pendency of special leave petition parties entered into Settlement – Complainant through affidavit that he do not want to further proceed with matter and have received amount in question – Therefore, order of conviction set aside.

Constitution of India, 1950 Article 142 – Negotiable Instruments Act , 1881 Sections 138 and 147 Dishonour of cheque – Application for exemption from surrendering and compounding of offence – Held, in exercise of power under Article 142 of Constitution of India and settlement, application for exemption from surrendering and compounding of offence allowed.

Criminal Procedure Code, 1973 Section 482 Negotiable Instruments Act , 1881 Section 142 read with Section 138 Dishonour of cheque – Quashing of summons issued in complaint – Dismissal of second application on ground of dismissal of first complaint for same relief – Held, successive application under Section 482 , Cr.P.C., 1973 under changed circumstances maintainable and dismissal of earlier application no bar to same – Form 32 issued by Registrar of Companies, under Companies Act , 1956, shows proof of resignation by Director prior to issuance of cheques – Difference between earlier and subsequent application inasmuch as statutory Form 32 did not fall for consideration by Court earlier – Thus, subsequent application cannot be said to a repeat application squarely on same facts and circumstances – Impugned order set aside. AIR 1975 SC 1002, relied on.

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