'Cheque bounce cases: Legal angle'

Cheque is a bill of exchange drawn upon a specified banker and is payable only on demand.
They are one of the important forms of transaction for payment of salary, dues, and fee and for
many more things. In simple terms dishonor of cheque is a condition in which bank refuses to
pay the amount to payee. Some of the most common reasons for dishonor of cheque are-

● Insufficient fund
● Closed account and
● Stop payment.

Parties to the cheque-

1. Drawer- Person who writes or issued the cheque i.e. the author of the cheque is known as
drawer.
2. Payee- To whom the cheque is made in favor is known as payee or the person who will
get the written amount on the cheque.
3. Drawee- It refers to the bank where the drawer has the account from which the cheque
amount shall be paid.
4. Payee’s- Refers to the bank where the payee has the bank account in which the cheque
amount to be deposited or where the cheque is to be deposited.

In case of K.Rajalingam V. R.Suganthalakshmi1 full bench of Madras High Court held that that
the appeals against acquittal of the accused in a cheque bounce case can be filed only before the
High Court under Section 378(4) of Cr.PC. Bench comprising of J.MM Sundresh, J.V
Bharathidasan and J. N. Anand rendered another full bench decision given in the case of n
S.Ganapathy V. N.Senthilvel and stating it ‘per incuriam’ as it has been decided without any
reference to the binding authority in Damodar S. Prabhu V. Sayed Babalal.

LEGAL PROVISIONS-

The Negotiable Instruments Act, 1881 deals with negotiable instrument, promissory notes,
cheques, bills of exchange etc. Section 138- 142 are added to keep the people trust alive on the
banking system and giving credibility to negotiable instruments employed in business
transactions. Section 138 of this Act states that dishonour of cheque is a criminal offence and is
punishable by imprisonment up to two years or with monetary penalty or with both.

Firstly after the dishonour of the cheque the drawer should give notice in written form within the
15 days of issuing the ‘Cheque return memo’ from the bank. Facts of case, amount to be paid,

https://www.livelaw.in/top-stories/cheque-bounce-cases-appeal-against-aquittal-157450?infinitescroll=1
nature of transaction and date of depositing instrument and date of dishonouring of cheque
should also be mentioned in the notice. If a drawer fails to make a fresh payment to the payee
within 30 days of receiving notice, payee has the right to file a case against the drawer under
Section 138 of The Negotiable Instruments Act, 1881.

However, the complaint should be registered in magistrate court within a month of expiry of the
notice period. Complaint along with related documents and an affidavit when submitted to the
court, summon will be issued against the drawer and court proceeding will start. If found guilty
drawer can be punished to prison terms of two year and/or fine maximum with the double of
amount of the cheque. However, he can go to session’s court for appeal within one month of
judgment from small court.

LANDMARK JUDGEMENT ON CHEQUE BOUNCE-

● In a remarkable judgment given by Delhi High Court in case of Dayawati v. Yogesh

Kumar Gosain stated a distinction between a conventional criminal case and case under
Section 138 of Negotiable Instrument Act,1881 and distinct them by saying that offence
under this act can refer to compoundable cases. It is legal to refer a criminal
compoundable case as one under Section 138 of NI Act to mediation.
● Earlier in the cases under 138 Of Negotiable Instrument Act, it could be initiated by the
holder of cheque at his business place. But in the case of Dashrath Roopsingh Rathod
Vs. Stae of Maharashtra & Anr. Supreme Court under the bench of justices TS Thakur,
Vikramjit Sen and C Nagappan ruled the cases and held that case has to be initiated at the
place where the bank of branch on which cheque was drawn is located. After this ruling a
large number of cases had seen interstate transfer.

Supreme Court in the case of Dalmia Cement (Bharat) Ltd v M/S.Galaxy Trades & Agencies
Ltd clearly specifies its objective behind the enactment of section 138 of N.I Act the apex court
states that in order to facilitate the trade and commerce and giving sanctity to such instruments
which can change in to money and which are easily transferable from one person to another. In
the present day carrying of such a bulk amount is not possible so instruments like cheque are
required in our daily life and therefore to keep the trust of reasonable man alive on this
instrument such a law is necessary.

Recent amendment in the N.I act which also known as Negotiable Instruments (Amendment)
Act,2018 which came into force on 1 September, 2018 permits the Court trying an offence
related to dishonour of cheque, to direct the drawer to pay interim compensation not above 20%
of the amount to the complainant within 60 days of the trial court's order to pay such
compensation. 2

2 https://www.mondaq.com/india/financial-services/812822/section-138-of-negotiable-instruments-act-overview
CONCLUSION-

In India about 35 lakh cases are pending in district courts and In order to deal with the situation
the Supreme court under the Bench of Chief Justice of India and Justice L.N. Rao while seeking
a plea filled in January 2005 stated that about half of the pending cases which is approximately
18 lakh are pending because the absence of accused before the court of trial. The bench also
suggested some reforms for the Reserve Bank of India as it is regulating body for all the banks.
Bench recommended that there is also a need to develop software especially for the cases of
cheque bounce for the tracking and service of process for accused. RBI may considering
developing a new performa of cheque which includes purpose of payment and other information
to facilitate adjudication of real issues the bench later added. 3

Apex court also added that there is a need to develop a mechanism to solve the cases of cheque
bounce outside the court and asked National Legal Services Authority to develop a scheme for
solving the case at pre-litigation state.

REVIEW REPORT 038

1. Title- Cheque Bounce Cases : Legal Angle

2. Plagiarism- 5%
3. Grammatical Errors- High
4. Adherence to formatting guidelines-
a. Font Style: Correct
b. Font size: Incorrect (headings)
c. Line spacing: Incorrect
d. Paraphrasing- Correct
e. Margins- Correct
f. Footnoting: Incorrect
5. Personal remarks-
a. Word limit of 1200 has not been exceeded (1036 words).

3 https://www.businesstoday.in/current/economy-politics/sc-to-create-mechanism-for-expeditious-disposal-of-
cheque-bounce-cases/story/397824.html
 b. No authority has been cited and no footnoting has not been done in accordance
with the prescribed citation standard.
c. Decisions of the court have been cited without establishing the intent.
d. Lacks in overall structure and coherence.

The article merely defines the situation, provides a statement of a relevant provision and a series
on unrelated case laws on the subject matter. The piece lacks argumentation of any sort and
presents random case laws without establishing any structure. It is just a collection of legal
provisions and judicial decisions that have been simply thrown in. The purpose of the
aforementioned is to support the main contention however in this article, there is no main
argument. Moreover, the article is also not concluded in a proper manner. Therefore, in my
opinion, the material is not suitable for publication.

REJECTED