138 Ni Act

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* 1. Critical Study of Dishonour of Cheques UnderNegotiable Instruments Act,1881Introduction:Cheques are very convenient instruments which can be issued to settle payments or obligations in a contractor even to give gifts. Section 138 to 142 are incorporated in Negotiable Instruments Act,1881 with a view toencourage the culture of use of cheques and enhancing the credibility of the instrument. The NI Act makes the drawer of cheque liable for penalties in case of dishonour of cheques due to insufficiency of funds or forthe reason that it exceeds the arrangements made by the drawer. The NI Act also contains sufficient safeguards to protect the drawer of cheques by giving him an opportunity to make good the payment ofdishonoured Cheque when a demand is made by the payee.History of the ACT and objective of amendments:The Negotiable Instruments Act, 1881 was amended by the Banking, Public Financial Institutions andNegotiable Instruments Laws (Amendment) Act, 1988 to insert a new Chapter XVII with Sections 138 to142. These new sections came into force w.e.f 1.4.1989.The Act was further amended in 2002 by inserting Sections 143 to 147 w.e.f 06.02.2003 to deal with certaindeficiencies noticed in the Act. Salient features of amendment are acceptance of Bankers memo of dishonouras prima facie evidence, evidence of witness or accused on affidavit, serving of summons by post/courier forspeedy trial/prosecution, increase of period for issuance of notice by payee and enhancing of punishment.Thus the main thrust of the amendment is to provide for a speedy and time bound trial, punishment of 2 yearsand double the amount of the cheque as fine. Another notable feature is that it provides for compounding ofthe offence.Offence under the NI Act:Offence under Section 138 of the N I Act shall be deemed to have been committed, if the followingconditions are satisfied:a) Cheque must have been drawn by a person(the drawer) in favour of a payee on his bank account formaking payment * 2. b) Such payment must be either in whole or partial discharge of a legally enforceable debtc) Cheque must have been returned by the Banker to the payee or holder in due course due to insufficientbalance in the account of the drawer or it exceeds the arrangement he had with the bank,Proviso requires fulfillment following additional conditions:a) Cheque must be presented within a period of 6 months from the date of cheque or its validity period whichever is earlier.b) The payee or holder in due course must demand payment of the cheque amount by written notice within15 days of receipt of noticec) Such notice must be issued within 30 days from the date of receipt of intimation of dishonour from bankandd) The drawer of cheque fails to pay demanded sum within 15 days from the date of receipt of the noticePunishment for offenceThe punishment provided for the offence u/s 138 is imprisonment for a term which may extend to a maximumperiod of 2 years or with a fine which may extend to a maximum of twice the amount of the cheque or withboth.Let us now shift our focus to certain requirements for making out an offence and for initiating prosecution. It isequally important for us to examine legal issues settled by judgments of Supreme Court. These judgementspaved way for filling up deficiencies in the Act and also in some cases provided for clarifications whereverambiguity existed.1. Post dated cheque and its dishonour * 3. Every cheque shall be presumed to be drawn on the date mentioned on the face of the cheque. A post datedcheque is a bill of exchange when it is written or drawn and it is not payable on demand until the date shownon the cheque. If post dated cheque is dishonored because of its presentation before it became payable ondemand, no offence u/s 138 can be alleged. The controversy is settled by the decision of the supreme courtin Anil Kumar Sawhney Vs Gulshan Rai(1993) 4 SCC 424. In this case Supreme Court held that a postdated cheque is a bill of exchange and it...
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