Impact of closing of account on cheque bouncing case – whether Section...

Impact of closing of account on cheque bouncing case – whether Section 138 attracted?

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What is the impact of “account closed” by drawer on a cheque bouncing case? Whether Section 138 of Negotiable Instruments Act, 1881, is attracted?

Answer: After issuing a cheque, if the account is closed by the drawer and due to this reason, the cheque is dishonoured, an offence of cheque bouncing under Section 138 of Negotiable Instruments Act, 1881, may still be attracted, provided other ingredients of this offence are satisfied.

In the case of NEPC Micon Ltd. v. Magma Leasing Ltd., (1999) 4 SCC 253, the Supreme Court observed that the cheque should be returned by the bank unpaid either because (a) the amount of money standing to the credit of that account is insufficient to honour the cheque; or (b) it exceeds the amount arranged to be paid from that account by a person with the bank, in such a situation, such person (drawer of cheque) shall be deemed to have committed an offence. Further, the offence will be complete only when the conditions in provisos (a), (b) and (c) to Section 138 are complied with. The Supreme Court further observed as under:

“Hence, the question is, in a case where a cheque is returned by the bank unpaid on the ground that the “account is closed”, would it mean that the cheque is returned as unpaid on the ground that “the amount of money standing to the credit of that account is insufficient to honour the cheque”? In our view, the answer would obviously be in the affirmative because the cheque is dishonoured as the amount of money standing to the credit of “that account” was “nil” at the relevant time apart from it being closed. Closure of the account would be an eventuality after the entire amount in the account is withdrawn. It means that there was no amount in the credit of “that account” on the relevant date when the cheque was presented for honouring the same. The expression “the amount of money standing to the credit of that account is insufficient to honour the cheque” is a genus of which the expression “that account being closed” is a specie. After issuing the cheque drawn on an account maintained, a person, if he closes “that account” apart from the fact that it may amount to another offence, it would certainly be an offence under Section 138 as there was insufficient or no fund to honour the cheque in “that account”. Further, the cheque is to be drawn by a person for payment of any amount of money due to him “on an account maintained by him” with a banker and only on “that account” the cheque should be drawn. This would be clear by reading the section along with provisos (a), (b) and (c).”

The aforesaid decision was approvingly quoted by the Supreme Court in another decision in the case of Laxmi Dyechem v. State of Gujarat, (2012) 13 SCC 375, in which it was held that:

“…the two contingencies envisaged under Section 138 of the Act must be interpreted strictly or literally. We find ourselves in respectful agreement with the decision in Magma case [(1999) 4 SCC 253] that the expression “amount of money … is insufficient” appearing in Section 138 of the Act is a genus and dishonour for reasons such “as account closed”, “payment stopped”, “referred to the drawer” are only species of that genus. Just as dishonour of a cheque on the ground that the account has been closed is a dishonour falling in the first contingency referred to in Section 138, so also dishonour on the ground that the “signatures do not match” or that the “image is not found”, which too implies that the specimen signatures do not match the signatures on the cheque would constitute a dishonour within the meaning of Section 138 of the Act.”

In view of these judgments of the Supreme Court, there should not be any doubt that if a cheque is dishonoured due to closing of account, then also the offence under Section 138 of the Negotiable Instruments Act may be attracted, provided of course if other ingredients of the offence are satisfied.

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