Dishonour of cheques -- How criminal liability arises

K. Krishnamurthi

A CHEQUE is a negotiable instrument, a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand.

The maker of cheque (he who signs the cheque) is called the `drawer'; the person thereby directed to pay is called the `drawee'. The person named in the instrument to whom or to whose order the money by instrument directed to be paid is called the `payee'.

Unfortunately, the cheque system is misused. Knowing well that there are no funds in one's bank account, if one issues cheque to a trader for goods purchased, the bank will return the cheque for insufficiency of funds.

* By issuing a cheque under such circumstance, you commit an offence under Section 138 of the Negotiable Instruments Act. On the cheque being dishonoured, the trader in terms of Section 138 of the Act can call upon the guilty to pay the money covered by the returned cheque within 15 days from the date of return.

* If I do not pay the amount despite the notice within one month from the receipt thereof, you commit the offence under Section 138 of the Act.

A decisive case: The validity period of a cheque is six months. In the case filed by Shri Alloys Ltd (appellant) against Jayaswals Neco Ltd (respondent) in the Supreme Court, it has given a landmark judgment settling the law as to where the cheque to be presented. The facts as disclosed are:

* The appellant issued a cheque dated July 21, 1997 on the State Bank of Indore in favour of the respondent.

* The cheque, when presented by the respondent, was returned unpaid.

* The cheque was presented on September 26, 1997 and returned unpaid.

* The respondent again presented the cheque in the SBI at Raipur on January 20, 1998.

* The cheque reached the drawer bank on January 24, 1998, six months from the date it became payable.

* The cheque was returned unpaid by the bank of the respondent on February 3, 1998.

* Notice in terms of Section 138 was issued on February 10, 1998 and received by the appellant on February 16, 1998.

Criminal complaint: A criminal complaint was filed against the appellant in a Magistrate court in Raipur. The appellant filed a criminal revision petition in the Sessions court contending that as the cheque was presented for payment beyond the period of six months, as prescribed under proviso(a) to Sec 138 of the Act, no offence was made out. The Sessions court allowed the revision.

The respondent took the matter to the High court by way of revision and his revision was allowed holding that the cheque can be presented within six months before the drawer's bank (payer's) or it can be presented before the drawer's as well as the payee's bank. It was against this judgment the above appeal was preferred by the appellant.

Cheque presentation dispute: The Punjab and Haryana High court in the Omprakash versus Gurcharan Singh, and the Gujarat High Court in Arumbhai Nikanthrai Nanavati versus Jayaben Prahladhai cases ruled that a cheque must be presented to the bank on which it was drawn within six months from the date of issue of the cheque.

However, the Madras High Court in A. K. Publications Ltd versus T. N. News Print and Papers Ltd., has taken the view that a cheque can be presented in the payee's bank or in the drawer's bank and the date of presentation in the respective bank will be reckoned for calculating the period of six months from the date it was drawn. The Madhya Pradesh High court in the case referred to has endorsed the view of the Madras High court.

In the instant case, the Supreme Court holds that the cheque was not presented before the drawer's bank within the statutory period of six months. The Supreme Court allowing the appeal, held that the criminal court had no jurisdiction to issue the process against the appellant (see accompanying story).

(The author is a Chennai-based Notary Public.)