Cheque dishonour under Section 138 N.I. Act when cheque presented multiple times...

Cheque dishonour under Section 138 N.I. Act when cheque presented multiple times in bank

SHARE

After the cheque given to me had bounced, the last date for filing the case in the Court for cheque bouncing under Section 138 of Negotiable Instruments Act has elapsed and I did not file the case. What options do I have? Can I present the cheque in my bank once again? Can I file a case if it bounces once again?

Cheque bounce caseAnswer: The simple answer to your question is “yes”. You can present the cheque more than once in the bank during its validity period. It can be done twice or multiple number of times, provided the cheque is presented during its validity period. Remember, the validity period of a cheque is 6 months or a shorter period mentioned (if any) on the cheque itself, whichever is earlier. Nowadays, generally the validity of a cheque is mentioned as 3 months from the date of the cheque.

Let me explain the reasons for my answer. As per a three judge-bench judgment (in 2012) of the Supreme Court in the case of MSR Leathers v. S. Palaniappan, (2013) 1 SCC 177, a case based upon second or successive dishonour (bounce – in common parlance) of the cheque is permissible so long as the same satisfies the requirements stipulated in the proviso to Section 138 of the Negotiable Instruments Act.  That is to say, you can present your cheque as many times as you want during the validity of the cheque. After such presentation of cheque, if the cheque is again dishonoured, you can send a Legal Notice to the drawer of the cheque within 30 days of such dishonour and if within the next 15 days after the receipt of such notice by the drawer of the cheque, the cheque amount is not made available to you, you have next 30 days to file a case in the Court in accordance with the provisions of Section 138 of Negotiable Instruments Act, 1881.

Thus, there is no bar on the institution of a case in the above scenario if you present the cheque again in the bank within its validity period, even if no case was filed on a previous occasion of dishonour of the same cheque. Provided, of course all the legal conditions as mentioned in clause (a), (b) and (c) of the proviso to Section 138 of the N.I. Act are satisfied.

However, this has not been the situation always. Prior to 2012, if a person failed to file a case within the stipulated period after the first notice for dishonour of cheque, he was not allowed to file a case on any subsequent presentation and consequent dishonour of the cheque. This principle of law was laid down by the Supreme Court in the case of Sadanandan Bhadran v. Madhavan Sunil Kumar (1998) 6 SCC 514 which was later overruled in 2012 by the abovementioned judgment in the case of MSR Leathers.

Prior to the passing of the MSR Leathers judgment, the law as interpreted by the Supreme Court in the case of Sadanandan Bhadran(supra)was that a complaint based on a second or successive dishonour of a cheque is not maintainable, if a complaint was not filed based on an earlier dishonour of cheque, which was followed by a statutory notice issued on the basis such (earlier) dishonour. The basic reason behind this was that a cause of action can arise only once. If a complaint case is not filed after first notice sent on dishonour, it amounts to absolution of the offender. It was observed as follows:

“Besides the language of Sections 138 and 142 which clearly postulates only one cause of action, there are other formidable impediments which negate the concept of successive causes of action. One of them is that for dishonour of one cheque, there can be only one offence and such offence is committed by the drawer immediately on his failure to make the payment within fifteen days of the receipt of the notice served in accordance with clause (b) of the proviso to Section 138. That necessarily means that for similar failure after service of fresh notice on subsequent dishonour, the drawer cannot be liable for any offence nor can the first offence be treated as non est so as to give the payee a right to file a complaint treating the second offence as the first one. At that stage, it will not be a question of waiver of the right of the payee to prosecute the drawer but of absolution of the drawer of an offence, which stands already committed by him and which cannot be committed by him again.

The other impediment to the acceptance of the concept of successive causes of action is that it will make the period of limitation under clause (c) of Section 142 otiose, for, a payee who failed to file his complaint within one month and thereby forfeited his right to prosecute the drawer, can circumvent the above limitative clause by filing a complaint on the basis of a fresh presentation of the cheque and its dishonour. Since in the interpretation of statutes, the court always presumes that the legislature inserted every part thereof for a purpose and the legislative intention is that every part should have effect, the above conclusion cannot be drawn for that will make the provision for limiting the period of making the complaint nugatory.” (emphasis supplied)

 It was further held in above case of Sadanandan Bhadranas follows:

“Having given our anxious consideration to this question, we are of the opinion that the above two provisions can be harmonised, with the interpretation that on each presentation of the cheque and its dishonour, a fresh right — and not cause of action — accrues in his favour. He may, therefore, without taking pre-emptory action in exercise of his such right under clause (b) of Section 138, go on presenting the cheque so as to enable him to exercise such right at any point of time during the validity of the cheque. But once he gives a notice under clause (b) of Section 138, he forfeits such right for in case of failure of the drawer to pay the money within the stipulated time, he would be liable for offence and the cause of action for filing the complaint will arise.” (emphasis supplied)

This above principle which disallowed a case to be filed on any subsequent presentation of cheque, if no action was taken in the previous instance of notice on dishonour, was followed in various cases by the Supreme Court, but was overruled in the aforesaid MSR Leathers case. While overruling, the court observed that though this case has been followed in various judgments, no disturbance or additions have been made in any of those judgments.

MSR Leathers case dealt with all the aspects in detail.

Firstly, it reaffirmed an already established principle that a cheque can be presented any number of times for encashment within its validity period. (Note: this principle was also recognized in Sadanandan Bhadran’s case).

Secondly, it was held that not only can a cheque be presented any number of times during its validity, but also that it is not necessary that a case needs to be filed at the very first instance of dishonour of cheque. Thus as said above, if the stipulated time after sending a Legal Notice is over and a case has not been filed, the person is not barred from filing a case, at any subsequent time, if he again presents the cheque and it is dishonoured, provided that three distinct conditions precedent are satisfied so as to constitute an offence and be liable for punishment.

The following three conditions must be satisfied on any dishonour so as to be enable the payee or the holder of the cheque to file a case in the court; and it was held in the aforesaid MSR Leathers case:

10. …… The first condition is that the cheque ought to have 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. The second condition is that the payee or the holder in due course of the cheque, as the case may be, ought to make 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 return of the cheque as unpaid. The third condition is that the drawer of such a cheque should have failed to make 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. 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.”

The court further reasoned in the aforesaid MSR Leathers case as follows:

14. …… There is, however, nothing in the proviso to Section 138 or Section 142 for that matter, to oblige the holder/payee of a dishonoured cheque to necessarily file a complaint even when he has acquired an indefeasible right to do so. The fact that an offence is complete need not necessarily lead to launch of prosecution especially when the offence is not a cognizable one. It follows that the complainant may, even when he has the immediate right to institute criminal proceedings against the drawer of the cheque, either at the request of the holder/payee of the cheque or on his own volition, refrain from instituting the proceedings based on the cause of action that has accrued to him. Such a decision to defer prosecution may be impelled by several considerations but more importantly it may be induced by an assurance which the drawer extends to the holder of the cheque that given some time the payment covered by the cheques would be arranged, in the process rendering a time consuming and generally expensive legal recourse unnecessary. It may also be induced by a belief that a fresh presentation of the cheque may result in encashment for a variety of reasons including the vicissitudes of trade and business dealings where financial accommodation given by the parties to each other is not an unknown phenomenon. Suffice it to say that there is nothing in the provisions of the Act that forbids the holder/payee of the cheque to demand by service of a fresh notice under clause (b) of proviso to Section 138 of the Act, the amount covered by the cheque, should there be a second or a successive dishonour of the cheque on its presentation. …

…..

22. ….. If the holder of the cheque has a right, as indeed is in the unanimous opinion expressed in the decisions on the subject, there is no reason why the corresponding obligation of the drawer should also not continue every time the cheque is presented for encashment if it satisfies the requirements stipulated in that clause (a) to the proviso to Section 138. There is nothing in that proviso to even remotely suggest that clause (a) would have no application to a cheque presented for the second time if the same has already been dishonoured once. Indeed if the legislative intent was to restrict prosecution only to cases arising out of the first dishonour of a cheque nothing prevented it from stipulating so in clause (a) itself. In the absence of any such provision a dishonour whether based on a second or any successive presentation of a cheque for encashment would be a dishonour within the meaning of Section 138 and clause (a) to proviso thereof. We have, therefore, no manner of doubt that so long as the cheque remains unpaid it is the continuing obligation of the drawer to make good the same by either arranging the funds in the account on which the cheque is drawn or liquidating the liability otherwise.

23. ….. By reason of a fresh presentation of a cheque followed by a fresh notice in terms of Section 138, proviso (b), the drawer gets an extended period to make the payment and thereby benefits in terms of further opportunity to pay to avoid prosecution. Such fresh opportunity cannot help the defaulter on any juristic principle, to get a complete absolution from prosecution.” (emphasis supplied)

The court further viewed the entire issue from the angle of ‘burden on the judiciary’ and observed as follows:

32. The controversy, in our opinion, can be seen from another angle also. If the decision in Sadanandan Bhadran’s case (supra) is correct, there is no option for the holder to defer institution of judicial proceedings even when he may like to do so for so simple and innocuous a reason as to extend certain accommodation to the drawer to arrange the payment of the amount. Apart from the fact that an interpretation which curtails the right of the parties to negotiate a possible settlement without prejudice to the right of holder to institute proceedings within the outer period of limitation stipulated by law should be avoided we see no reason why parties should, by a process of interpretation, be forced to launch complaints where they can or may like to defer such action for good and valid reasons. After all, neither the courts nor the parties stand to gain by institution of proceedings which may become unnecessary if cheque amount is paid by the drawer. The magistracy in this country is over-burdened by an avalanche of cases under Section 138 of Negotiable Instruments Act. If the first default itself must in terms of the decision in Sadanandan Bhadran’s case (supra) result in filing of prosecution, avoidable litigation would become an inevitable bane of the legislation that was intended only to bring solemnity to cheques without forcing parties to resort to proceedings in the courts of law. …..”.

Thus, in the aforesaid MSR Leathers case, the Supreme Court took a liberal approach to interpret the provisions relating to dishonour of cheque. So in case you could not file a case at the time of the first dishonour of cheque, you may very well present the cheque again (if the cheque is still in the validity period) and after complying with all relevant provisions of Section 138 of Negotiable Instruments act, file a case in the appropriate court.

Facebook Comments

Powered by TG Facebook Comments

  • Himanshu

    I have one small query.
    our client have sent a “demand letter” ( not demand notice or legal notice) on their letter head regarding payment of the dishonored cheque. The “demand letter” contains ALL the ingredients required by statute in respect of requirements needed under 138 ( i.e. 15 days notice to the payee.. etc) which are required to be sent while sending a “legal or demand notice”.
    My question is whether this “demand letter” can be considered as “demand notice” or “legal notice” or should we send a separate legal notice?

  • What is required by clause (b) of Section 138(1) of N.I. Act is the following:

    “(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 return of the cheque as unpaid;”

    If you feel that the ingredients of this clause are met by the demand letter sent by your client (as you have written), then it should be alright.

    However, if you have a doubt about this and the time limit mentioned in the above clause is still available, then you can send a proper demand notice even now.

  • Sistla Ramakrishna

    You have already told that ingredients under section: 138 (b) of the NI act complied with. It is sufficient to file a case. If you send another notice it will turn into acquittal of accused on the ground of issuance of second notice on the same cause of action

  • Prem Vasistha

    I have a small querry, please:

    The tenant had been depositing rental as X amount (which is lesser than the awarded amount).
    The Judgement decides rental amount as 4X.

    The defaulter tenant did not care and did not vacate the premises

    After lapse of time, the Court appoints bailef and issues order for attachment of the assets of the tenant.

    The tenant to avoid attachment of the assets, gives cheque for full amount i.e. equivalent of 4X without deducting the rental already deposited.

    Although the said rental has not yet been claimed from the court.

    On presentation of the cheque, the cheque is bounced for insufficent funds.

    Now the question is, should the notice be served for full cheque amount or minus the money already deposited in the court, please clarify with reference of any judgement.
    thanks

  • Please see my following article in which the answer to your question is covered broadly:

    http://tilakmarg.com/answers/cheque-bouncing-under-s-138-n-i-act-where-cheque-amount-is-more-than-liability/