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Study Material on

Effective Implementation of Negotiable

Instruments Act

© By The Rajasthan State Judicial Academy, Jodhpur (Rajasthan)

All rights reserved

No part of this publication may be produced in any form electronic or mechanical or otherwise

without the written permission of the publisher. The below publication is only meant to further

academic understanding and is not to be construed as legal advice. The contents are only for

internal circulation with the target audience.

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CONTENTS OF THE MATERIAL

I. Introduction

II. Aim and Object of the Act

III. Constitutional Vision

IV. Brief Overview of various facets of NI Act

V. The Negotiable Instruments (Amendment) Act, 2018- Highlights

VI. Latest Judgments of the Hon‟ble Supreme Court on Negotiable Instruments Act

VII. Notable Judgments of the Hon‟ble Rajasthan High Court on Negotiable Instruments Act

VIII. Conclusion

INTRODUCTION

What is the meaning of negotiable instruments?

Ans- „Negotiable‟ means „transferable by delivery‟ and the word „instrument‟ means „a written

document by which a right is created in favor of some person‟.

Thus the term „Negotiable Instrument‟ literally means „a written document transferable by

delivery‟.

According to Sec. 13 of the Negotiable Instruments Act, 1881, Negotiable instrument means „a

Promissory Note, Bills of Exchange or Cheque payable either to order or to bearer‟.

Section 13 - "Negotiable instrument"

1[(1 ) A "negotiable instrument" means a promissory note, bill of exchange or cheque payable

either to order or to bearer.

Explanation 1: A promissory note, bill of exchange or cheque is payable to order which is

expressed to be so payable or which is expressed to be payable to a particular person, and does

not contain words prohibiting transfer or indicating an intention that it shall not be transferable.

Explanation 2: A promissory note, bill of exchange or cheque is payable to bearer which is

expressed to be so payable or on which the only or last endorsement is an endorsement in blank.

Explanation 3: Where a promissory note, bill of exchange or cheque, either originally or by

endorsement, is expressed to be payable to the order of a specified person, and not to him or his

order, it is nevertheless payable to him or his order at his option.]

2[(2)] A negotiable instrument may be made payable to two or more payees jointly, or it may be

made payable in the alternative to one of two, or one or some of several payees.]

The Negotiable Instruments Act was enacted, in India, in 1881.Prior to its enactment, the

provision of the English Negotiable Instrument Act were applicable in India, and the present

Act is also based on the English Act with certain modifications.

The early origin of these instruments is a matter of speculation among text writers. In

primitive societies, the system of bills of exchange could not, of course, have existed; for

firstly, money which it represents was not invented till long after, and secondly, the art of

writing was a thing unknown to them. When the system of bartering became inconvenient, a

common medium of exchange and an instrument of an easily convertible character was found

necessary, and money came into use. It might have had its humble origin, but when once the

utility of money was found, it was never lost sight of.

The Act operates subject to the provisions of Sections 31 and 32 of the Reserve Bank of

India Act, 1934. Section 31 of the Reserve Bank of India Act provides that no person in

India other than the Bank or as expressly authorised by this Act, the Central Government

shall draw, accept, make or issue any bill of exchange, hundi, promissory note or engagement

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for the payment of money payable to bearer on demand. This Section further provides that no

one except the RBI or the Central Government can make or issue a promissory note

expressed to be payable or demand or after a certain time. Section 32 of the Reserve Bank of

India Act makes issue of such bills or notes punishable with fine which may extend to the

amount of the instrument.

What are the types of Negotiable Instruments?

Section 13 of the Negotiable Instruments Act states that a negotiable instrument is a

promissory note, bill of exchange or a cheque payable either to order or to bearer.

Negotiable instruments recognised by statute are:

i. Promissory notes

ii. Bills of exchange

iii. Cheques.

Negotiable instruments recognised by usage or custom are:

i. Hundis

ii. Share warrants

iii. Dividend warrants

iv. Bankers draft

v. Circular notes

vi. Bearer debentures

vii. Debentures of Bombay Port Trust

viii. Railway receipts

ix. Delivery orders.

This list of negotiable instrument is not a closed chapter. With the growth of commerce, new

kinds of securities may claim recognition as negotiable instruments. The courts in India

usually follow the practice of English courts in according the character of negotiability to

other instruments.

With regards to the applicability of the English law it has been held that, the Negotiable

Instruments Act is based on the principles of English Law and where no special

considerations arise with reference to Indian circumstances the courts are justified in

construing the statute conforming to the provisions of the English Law. ( See: KTVRT

Verappa Chetty v. Vellayayan Ambalam AIR 1919 Mad 179)

AIM AND OBJECT OF THE ACT

What are the objectives of the Act?

The Preamble of the Act defines it as;

“An Act to define and amend the law relating to Promissory Notes, Bills of Exchange and

Cheques”

Object:

The main object of the Negotiable Instruments Act, 1881 is to legalise the system by which

instruments contemplated by it could pass from hand to hand by negotiation like any other

goods. The purpose of the Act was to present an orderly and authoritative statement of the

leading rules of law relating to the negotiable instruments. To achieve the objective of the Act,

the legislature thought it proper to make provision in the Act for conferring certain privileges to

the mercantile instruments contemplated under it and provide special procedure in case the

obligation under the instrument was not discharged. (See: Shri Ishar Alloy Steels Ltd v.

Jayaswals Neco Ltd. (2001) 2 SCC 609)

Further,

It facilitates the settlement of payments in business as they pass freely from holder to holder

due to easy transferability of value of instrument.

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It provides legal protection to different mercantile instruments.

It presents orderly and authoritative statement of leading rules of law relating to negotiable

instrument.

It provides for the special procedure in case the obligations which have to discharge under

the instruments.

It regulates the different types of negotiable instruments which include Promissory notes,

Bills of Exchange and Cheques.

It explains the capacity and liabilities of the parties to the instrument.

It provides the understanding of different topics under the Act that are negotiation,

assignment, endorsement etc.

It inculcates faith in the efficacy of banking operations and credibility in transacting business

on the negotiable instruments.

In the case of Dalmia Cement(Bharat) Ltd. v. Galaxy Traders and Agencies Ltd. (2001)

6 SCC 463, the Apex Court referred to the object of Section 138 of the Act. The court

observed that the Act was enacted and section 138 thereof incorporated with a specified

object of making a special provision by incorporating a strict liability so far as the cheque, a

negotiable instrument, is concerned. The law relating to the negotiable instruments is the law

of commercial world legislated to facilitate the activities in trade and commerce making

provision of giving sanctity to the instruments of credit which could be deemed to be

convertible into money and easily passable from one person to another.

CONSTITUTIONAL VISION

What is the Constitutional Vision behind the enactment of the Negotiable Instruments

Act, 1881?

CONSTITUTIONALITY AND VALIDITY OF CHAPTER XVII AND SECTION 138

The introduction of chapter XVII in the year 1988 has been challenged on various grounds

before the courts including the legislative competency of the Parliament to introduce the

chapter, qua violative of Art. 14 of the Constitution, converting a civil liability into an

offence, running counter to the principle of presumption of innocence and the exclusion of

mens rea etc.

The constitutional validity of the provisions of chapter XVII and the power of the Parliament

to enact the same has been upheld. Such power is available under Entry 45 (Banking) and

Entry 46 (Bills of Exchange, Cheques, Promissory Notes and other like instruments) of List I

of the Seventh Schedule of the Constitution. [See: Rajinder Steels Ltd. v. Union of India,

(2000) 100 CompCas 274 (DB)]

In Ramawati Sharma v. Union of India (2001) 107 CompCas 215, section 138 was

challenged in the Allahabad High Court on the ground that it punishes only dishonour of

cheques and not bills of exchange or promissory notes and the liability to repay loan is only a

civil one and thus was violative of Arts. 14, 19 and 21 of the Constitution. The court turned

down the contentions and upheld the constitutionality of the provision. The court held that a

promissory note cannot be equated with a cheque. A promissory note simply creates liability

but by issuing a cheque, drawer desires that certain payment is to be made in favour of

holder. The court also noticed that the law has been necessitated because of the malpractices

prevalent in the society and was thus in public interest.

What are the relevant provisions related to dishonor of cheques, Notice of Dishonor,

Cause of Action, Jurisdiction, Cognizance and Procedure for Trial under Negotiable

Instruments Act and how are proceedings conducted for the same?

NEGOTIABLE INSTRUMENTS ACT, 1881

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Section 138 - Dishonour of cheque for insufficiency, etc., of funds in the account

Where any cheque drawn by a person on an account maintained by him with a banker for

payment of any amount of money to another person from out of that account for the discharge, in

whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of

the amount of money standing to the credit of that account is insufficient to honour the cheque or

that it exceeds the amount arranged to be paid from that account by an agreement made with

that bank, such person shall be deemed to have committed an offence and shall, without

prejudice to any other provisions of this Act, be punished with imprisonment for 1[a term which

may be extended to two years], or with fine which may extend to twice the amount of the cheque,

or with both: Provided that nothing contained in this section shall apply unless--

(a) the cheque has 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;

(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, 2[within thirty days] of the receipt of information by him from the bank regarding the

return of the cheque as unpaid; and

(c) the drawer of such cheque fails to make the 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.

Explanation.-- For the purposes of this section, "debt or other liability" means a legally

enforceable debt or other liability.]

To constitute an offence under section 138 of Negotiable Instruments Act, there must be:

i. Drawing of the cheque

ii. Presentation of the cheque to the bank within the period of its validity

iii. Returning the cheque by the drawee bank

iv. Giving notice in writing to the drawer of the cheque demanding payment of the cheque

amount within thirty days of the receipt of information from the bank regarding the return

of the cheque unpaid.

v. Failure of the drawer to make payment within fifteen days of the receipt of the notice

Cheque must be given for the discharge, in whole or in part, of any debt or other liability but

that debt or other liability must be legally enforceable.

In K. Bhaskaran v. Sankarn Vaidhyan Balan and Anr. (1999) 7 SCC 510, Hon‟ble

Supreme Court held that issuance of notice has relevance to the question of territorial

jurisdiction under section 138 of Negotiable Instruments Act.

It was further held, Concatenation of five acts viz, drawing of cheque, presentation of cheque

to bank, returning of cheque, giving notice in writing and failure of drawer to make payment,

is a sine qua non for completion of offence of dishonour of cheque. Complainant can choose

any one of those Courts having jurisdiction over any one of the local areas within territorial

limits of which any one of those five acts was done.

Also, Return of demand notice as unclaimed would amount to receipt of notice by sendee

within meaning of Section 138 of Negotiable Instruments Act and reckoning of 15 days

period would start from day of return of notice.

NEGOTIABLE INSTRUMENTS ACT, 1881

Section 142 - Cognizance of offences

142. Cognizance of offences

(1)] Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974)--

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(a) no court shall take cognizance of any offence punishable under section 138 except upon a

complaint, in writing, made by the payee or, as the case may be, the holder in due course of the

cheque;

(b) such complaint is made within one month of the date on which the cause-of-action arises

under clause (c) of the proviso to section 138 :

[Provided that the cognizance of a complaint may be taken by the Court after the prescribed

period, if the complainant satisfies the Court that he had sufficient cause for not making a

complaint within such period.]

(c) no court inferior to that of a Metropolitan Magistrate or a Judicial Magistrate of the first

class shall try any offence punishable under section 138.]

(2) The offence under section 138 shall be inquired into and tried only by a court within whose

local jurisdiction,-

(a) if the cheque is delivered for collection through an account, the branch of the bank where the

payee or holder in due course, as the case may be, maintains the account, is situated; or

(b) if the cheque is presented for payment by the payee or holder in due course, otherwise

through an account, the branch of the drawee bank where the drawer maintains the account, is

situated.

Explanation.- For the purposes of clause (a), where a cheque is delivered for collection at any

branch of the bank of the payee or holder in due course, then, the cheque shall be deemed to

have been delivered to the branch of the bank in which the payee or holder in due course, as the

case may be, maintains the account.]

Effect of the Negotiable Instruments (Amendment) Act, 2015- The Act vide Section

142(2) r/w Section 142-A appears to have modified the law as laid down in Dashrath

Rupsingh Rathod v. State of Maharashtra (2014) 9 SCC 129, whereby it was held that the

territorial jurisdiction for filing of cheque dishonor complaint is restricted to the court within

whose territorial jurisdiction the offence is committed i.e. which is the location where the

cheque is dishonored or returned unpaid by the bank on which it is drawn. Place of issuance

or delivery of the statutory notice or where the complainant chooses to present the cheque for

encashment by his bank as per Dashrath Rupsingh Rathod were not relevant for the purposes

of determining territorial jurisdiction for filing of cheque dishonor complaints

In C.C. Alavi Hazi Vs. Palapetty Muhammed, (2007) 6 SCC 555, Hon‟ble Supreme Court

held that any drawer who claims that he did not receive the notice sent by post, can within

fifteen days of the receipt of the summons from the court in respect of the complaint under

section 138 of Negotiable Instruments Act, make payment of the cheque amount and submit

to the court that he had made payment within fifteen days of receipt of summons and in that

case the complaint is liable to be rejected.

Once execution of cheque is admitted, section 139 of Negotiable Instruments Act creates

presumption that the holder of a cheque receives the cheque in discharge, in whole or in part,

of any debt or other liability.

The presumption under section 139 of Negotiable Instruments Act may be rebutted by the

accused on the basis of preponderance of probability but initial burden is on the complainant

to prove that cheque was given for the payment of legally enforceable debt or liability. Time

barred debt can not be recovered by the complainant under 138 of Negotiable Instruments

Act.

Recently Hon‟ble Supreme Court in Basalingappa v. Mudibasappa (2019) 5 SCC 418 has

held that complainant is bound to explain his financial capacity when it is questioned by the

accused on. It further held; Presumption u/s 139 is rebuttable on preponderance of

probabilities. Also, Court cannot insist on a person to lead negative evidence. The principles

enumerated by the Court are summarized as:

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i. Once the execution of cheque is admitted Section 139 of the Act mandates a presumption

that the cheque was for the discharge of any debt or other liability.

ii. The presumption under Section 139 is a rebuttable presumption and the onus is on the

accused to raise the probable defence. The standard of proof for rebutting the

presumption is that of preponderance of probabilities.

iii. To rebut the presumption, it is open for the accused to rely on evidence led by him or

accused can also rely on the materials submitted by the complainant in order to raise a

probable defence. Inference of preponderance of probabilities can be drawn not only

from the materials brought on record by the parties but also by reference to the

circumstances upon which they rely.

iv. That it is not necessary for the accused to come in the witness box in support of his

defence, Section 139 imposed an evidentiary burden and not a persuasive burden,

v. It is not necessary for the accused to come in the witness box to support his defence.

Liability under section 138 of Negotiable Instruments Act arises:

i. When cheque is dishonored for insufficient funds

ii. Payment stopped

iii. Account closed

iv. Refer to drawer

v. Exceeds arrangement

vi. Signature does not match or signature differs

Premature complaint is not maintainable. Court should return the complaint for fresh

presentation. If accused denies payment after the receipt of notice, before expiry of fifteen

days, the complaint may be presented within thirty days from such denial.

Provisions of section 219 and 220 of Criminal Procedure Code do not apply to Negotiable

Instruments Act cases but when common notice is being given and that has been received,

thereafter no payment is being made, then in that case, single complaint is maintainable.

The procedure for trial under Negotiable Instruments Act, as per the provisions of section

143 of Negotiable Instruments Act summary procedure should normally be followed except

where exercise of power under second proviso to section 143 is considered to be necessary.

In summary proceedings imprisonment up to one year and fine up to five thousand rupees

can be imposed.

Further, if it appears to the magistrate that the nature of the case is such that a sentence of

imprisonment for term exceeding one year may have to be passed, shall after hearing the

parties, record an order to that effect and follow the procedure of summon trial.

According to section 142 of Negotiable Instruments Act, complaint should be made within

one month of the date on which the cause of action arises under Clause-C of the proviso of

section 138 of Negotiable Instruments Act but court may on sufficient grounds condone the

delay.

Cause of Action Under Negotiable Instruments Act, 1881:

I. S.L. Construction & Ors. v. Alapati Srinivasa Rao & Ors., AIR 2009 SC 1538

Held: The Hon‟ble Supreme Court held that the cause of action for filing a complaint can arise

only once and not more than once.

II. Tameeshwar Vaishnav v. Ramvishal Gupta, AIR 2010 SC 1209

Held: The Hon‟ble Supreme Court held that cheque may be presented several times within the

period of its validity, but the cause of action for a complaint U/s 138 of the Act arises only once.

Notice of Dishonour under Negotiable Instruments Act, 1881:

I. Dalmia Cement Ltd. v. Galaxy Traders, AIR 2001 SC 676

Held: The Hon‟ble Supreme Court held that to constitute an offence U/s 138 of the Act the

complainant is obliged to prove its ingredients which include the receipt of notice by the accused

under Clause (b). It is to be kept in mind that it is not the „giving‟ of the notice which makes the

offence but it is the „receipt‟ of the notice by the drawer which gives the cause of action to the

complainant to file the complaint within the statutory period. In the instant case, complaint was

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filed within one month from the date of second notice so it is not barred by limitation. The cause

of action arises from the date of receipt of notice demanding payment.

II. V. Raja Kumari v. P. Subbarama Naidu and Ors., AIR 2005 SC 109

Held: The Hon‟ble Supreme Court held that service or non-service of notice is a question of fact

and complaint U/s 138 of the Act cannot be quashed or dismissed merely because the notice was

not served on the accused or drawer, without enquiring into the circumstances leading to the non-

service of notice. Non-service of notice is not a ground for rejecting the complaint, even before it

is numbered.

How is compensation and compromise carried out under the relevant provisions of the

Negotiable Instruments Act 1881?

Compensation and Compromise under Negotiable Instruments Act 1881

Section 143A - Power to direct interim compensation

(1) Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974),

the Court trying an offence under section 138 may order the drawer of the cheque to pay interim

compensation to the complainant--

(a) in a summary trial or a summons case, where he pleads not guilty to the accusation made in

the complaint; and

(b) in any other case, upon framing of charge.

(2) The interim compensation under sub-section (1) shall not exceed twenty per cent. of the

amount of the cheque.

(3) The interim compensation shall be paid within sixty days from the date of the order under

sub-section (1), or within such further period not exceeding thirty days as may be directed by the

Court on sufficient cause being shown by the drawer of the cheque.

(4) If the drawer of the cheque is acquitted, the Court shall direct the complainant to repay to the

drawer the amount of interim compensation, with interest at the bank rate as published by the

Reserve Bank of India, prevalent at the beginning of the relevant financial year, within sixty days

from the date of the order, or within such further period not exceeding thirty days as may be

directed by the Court on sufficient cause being shown by the complainant.

(5) The interim compensation payable under this section may be recovered as if it were a fine

under section 421 of the Code of Criminal Procedure, 1973 (2 of 1974).

(6) The amount of fine imposed under section 138 or the amount of compensation awarded under

section 357 of the Code of Criminal Procedure, 1973 (2 of 1974), shall be reduced by the

amount paid or recovered as interim compensation under this section.]

Section 148 - Power of Appellate Court to order payment pending appeal against

conviction

(1) Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974), in

an appeal by the drawer against conviction under section 138, the Appellate Court may order

the appellant to deposit such sum which shall be a minimum of twenty per cent. of the fine or

compensation awarded by the trial Court:

Provided that the amount payable under this sub-section shall be in addition to any interim

compensation paid by the appellant under section 143A.

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(2) The amount referred to in sub-section (1) shall be deposited within sixty days from the date of

the order, or within such further period not exceeding thirty days as may be directed by the

Court on sufficient cause being shown by the appellant.

(3) The Appellate Court may direct the release of the amount deposited by the appellant to the

complainant at any time during the pendency of the appeal:

Provided that if the appellant is acquitted, the Court shall direct the complainant to repay to the

appellant the amount so released, with interest at the bank rate as published by the Reserve Bank

of India, prevalent at the beginning of the relevant financial year, within sixty days from the date

of the order, or within such further period not exceeding thirty days as may be directed by the

Court on sufficient cause being shown by the complainant.]

Section 143A regarding payment of interim compensation; there is no need to stop

proceedings of original case when recovery proceedings regarding interim compensation are

pending before the court.

Recovery proceedings of interim compensation and trial of original case under section 138

may run side by side. Payment under section 148 shall be a minimum of 20% of the fine or

compensation awarded by the trial court, provided that the amount payable under this

provision shall be in addition to any interim compensation paid by the appellant under

section 143A. Both the sections 143A and 148 have been instituted by the Amendment Act

of 2018.

In Surendra Singh Deshwal v. Veerendra Gandhi (2019) 11 SCC 341, Hon‟ble Supreme

Court held that complainant is to be compensated immediately. It further held that Section

148 can be applied to complaints filed prior to 01.09.2018.

The word „may‟ used in section 148, negotiable Instruments Act, 1881 should be construed

as „shall‟. Section 357(2), CrPC shall not apply to section 148, N.I. Act.

Hon‟ble Apex court in R. Vijayan vs Baby & Anr Criminal Appeal No. 1902 of

2011,(Arising out of SLP (Crl.) No.2586 of 2007) felt the need of carrying out amendment

in the Act addressing the following problems:

(i)The provision for levy of fine which is linked to the cheque amount and may extend to twice

the amount of the cheque ( section 138) thereby rendering section 357 (3) virtually infructuous in

so far as cheque dishonour cases.

(ii) The provision enabling a First Class Magistrate to levy fine exceeding Rs.5,000/- ( section

143) notwithstanding the ceiling to the fine, as Rs.5,000/- imposed by section 29(2) of the Code;

(iii) The provision relating to mode of service of summons ( section 144) as contrasted from the

mode prescribed for criminal cases in section 62 of the Code;

(iv) The provision for taking evidence of the complainant by affidavit ( section 145) which is

more prevalent in civil proceedings, as contrasted from the procedure for recording evidence in

the Code;

(v) The provision making all offences punishable under section 138 of the Act compoundable.

Amendment Act of 2018

To cure the aforementioned defects amendment was then carried out in Negotiable Instrument

Act 1881 in 2018. Vide this amendment Section 143A and Section 148 were introduced and the

object for creating these two sections as elucidated from the bill is:

(i) to insert a new section 143A in the said Act to provide that the Court trying an offence

under section 138 may order the drawer of the cheque to pay interim compensation to the

complainant, in a summary trial or a summons case, where he pleads not guilty to the

accusation made in the complaint; and in any other case, upon framing of charge. The

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interim compensation so payable shall be such sum not exceeding twenty per cent. of the

amount of the cheque; and

(ii) to insert a new section 148 in the said Act so as to provide that in an appeal by the

drawer against conviction under section 138, the Appellate Court may order the appellant

to deposit such sum which shall be a minimum of twenty per cent. of the fine or

compensation awarded by the trial court.

With effect from 01.09.2018, Section 143A and Section 148 were inserted in the Act by

Amendment Act 20 of 2018. Said Section is to the following effect:

It must be stated that prior to the insertion of Section 143A in the Act there was no provision on

the statute book where under even before the pronouncement of the guilt of an Accused, or even

before his conviction for the offence in question, he could be made to pay or deposit interim

compensation. The imposition and consequential recovery of fine or compensation either through

the modality of Section 421 of the Code or Section 357 of the Criminal Procedure Code could

also arise only after the person was found guilty of an offence. That was the status of law which

was sought to be changed by the introduction of Section 143A in the Act. It now imposes a

liability that even before the pronouncement of his guilt or order of conviction, the Accused may,

with the aid of State machinery for recovery of the money as arrears of land revenue, be forced

to pay interim compensation. The person would, therefore, be subjected to a new disability or

obligation.

Judicial Pronouncements

In G. J Raja v. Tejraj Surana AIR 2019 SC 3817, the Supreme Court has held that the

applicability of Section 143A of the Act is prospective in nature and in operation and

confined to cases where the offence under Section 138 of the Act was committed after the

introduction of that provision (Section 143A) in the statute book.

In Surinder Singh Deswal @ Col S.S. Deswal and others Vs. Virender Gandhi (SC) :

2019 (3) RCR (Criminal) 186, Hon'ble Supreme Court has held that the provisions of

Section 148 of the N.I. Act are retrospective in nature and Section 148 of the N.I. Act, as

amended, will be applicable in respect of the appeals against the order of conviction and

sentence for the offence under Section 138 of the N.I. Act even in a case where the criminal

complaint for the offence under Section 138 of the N.I. Act was filed prior to enactment of

the Negotiable Instruments (Amendment) Act, 2018 (20 of 2018) w.e.f. 01.09.2018 and that

though in amended Section 148 of the N.I. Act, the word used is "may", but considering the

amended Section 148 of the N.I. Act as a whole to be read with the Statement of Objects and

Reasons of amending the same, it is generally to be construed as a "rule" or "shall" and not

directing of the appellant by the appellate court to deposit minimum of twenty per cent of the

fine or compensation awarded by the trial Court is an exception for which special reasons

have to be assigned.

This position clarified in the judgment was reiterated upon by the Rajasthan High Court in

Anand Sharma Vs. State of Rajasthan (S.B. Criminal Miscellaneous (Petition) No.

308/2020 decided on 22.04.2020) when it was seized with an issue as to whether direction

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issued by the appellate Court for depositing 20% of the amount as directed by the trial Court

is in accordance with the law as the offence alleged is relating to the period prior to coming

into force of the amendment made in Section 143-A of the N.I. Act, 1881.

Compounding of offences

Also, Compounding can be done at any stage, as offence under section 138 of Negotiable

Instruments Act is compoundable in nature. Further, in the event of compounding of offence

after conviction, the court before which the appeal is pending may also compound, even it

may be compounded before the Hon‟ble Supreme Court also.

As per the guidelines given in Damodar S. Prabhu v. Sayed Babalal H (2010) 5 SCC 663,

offence can be compounded at any stage. In this case it was held that;

I. Permissibility of the compounding of an offence is linked to the perceived seriousness of

the offence and the nature of the remedy provided.

II. With respect to the offence of dishonour of cheques, it is the compensatory aspect of the

remedy which should be given priority over the punitive aspect.

III. In view of non-obstante clause, compounding of offences under N I Act, 1881 is

controlled by Section 147 and the scheme contemplated by Section 320 of „CrPC‟ will

not be applicable in the strict sense since the latter is meant for specified offences under

the Indian Penal Code.

In the instant case, the Supreme Court had issued the following guidelines for a graded

scheme of imposing costs on parties who unduly delay compounding of the offence.

i. That directions can be given that the Writ of Summons be suitably modified making it

clear to the accused that he could make an application for compounding of the

offences at the first or second hearing of the case and that if such an application is

made, compounding may be allowed by the court without imposing any costs on the

accused.

ii. If the accused does not make an application for compounding as aforesaid, then if an

application for compounding is made before the Magistrate at a subsequent stage,

compounding can be allowed subject to the condition that the accused will be

required to pay 10% of the cheque amount to be deposited as a condition for

compounding with the Legal Services Authority, or such authority as the Court deems

fit.

iii. Similarly, if the application for compounding is made before the Sessions Court or a

High Court in revision or appeal, such compounding may be allowed on the condition

that the accused pays 15% of the cheque amount by way of costs.

iv. Finally, if the application for compounding is made before the Supreme Court, the

figure would increase to 20% of the cheque amount

In Meters and Instruments Private Limited and Another v. Kanchan Mehta (2018) 1

SCC 560

It was held by the Supreme Court that;

Though compounding requires consent of both parties, even in absence of such consent, the

Court, in the interests of justice, on being satisfied that the complainant has been duly

compensated, can in its discretion close the proceedings and discharge the accused.

In Indian Bank Association and Ors vs. Union of India and Ors. (2014) 5 SCC 590;

Directions given for maintaining uniformity in procedure in dealing with case u/s 138 of the NI

Act, namely;

1) Metropolitan Magistrate/Judicial Magistrate (MM/JM), on the day when the complaint

under Section 138 of the Act is presented, shall scrutinize the complaint and, if the

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complaint is accompanied by the affidavit, and the affidavit and the documents, if any,

are found to be in order, take cognizance and direct issuance of summons.

2) MM/JM should adopt a pragmatic and realistic approach while issuing summons.

Summons must be properly addressed and sent by post as well as by e-mail address got

from the complainant. Court, in appropriate cases, may take the assistance of the police

or the nearby Court to serve notice to the accused. For notice of appearance, a short date

be fixed. If the summons is received back un-served, immediate follow up action be

taken.

3) Court may indicate in the summon that if the accused makes an application for

compounding of offences at the first hearing of the case and, if such an application is

made, Court may pass appropriate orders at the earliest.

4) Court should direct the accused, when he appears to furnish a bail bond, to ensure his

appearance during trial and ask him to take notice under Section 251Cr.P.C. to enable

him to enter his plea of defence and fix the case for defence evidence, unless an

application is made by the accused under Section 145(2) for re-calling a witness for

cross-examination.

5) The Court concerned must ensure that examination-in-chief, cross-examination and

reexamination of the complainant must be conducted within three months of assigning

the case. The Court has option of accepting affidavits of the witnesses, instead of

examining them in Court. Witnesses to the complaint and accused must be available for

cross-examination as and when there is direction to this effect by the Court.

All the Criminal Courts in the country dealing with Section 138 cases were directed to follow the

above-mentioned procedures for speedy and expeditious disposal of cases falling under Section

138 of the Negotiable Instruments Act.

The Hon‟ble Delhi High Court in Dayawati v. Yogesh Kumar Gosain [2017] 205

CompCas 231(Delhi) delivered a landmark judgment and held that Compoundable

Offences can also be resolved through Mediation and thereafter laid the procedure to be

adopted in such a case and the implications of legal breach.

It implies that offences under Section 138 of Negotiable Instrument's Act, 1881 can be tried

under Section 89 of Code of Civil Procedure Code, 1908 which specifies the disputes that

can be resolved under Alternate Dispute Resolution. The bench while giving its judgment

relied on the three bench judgment of Hon'ble Supreme Court in Damodar S. Prabhu v

Syed Babala which ruled that "the punishment in cases under NI Act is not a means of

seeking retribution, but is more a means to ensure payment of money." As a general principle

of law, the Code of Criminal Procedure, 1973 and the Negotiable Instruments Act, 1881 do

not contain any provision to refer matters to ADR unlike some of the other statutes i.e Hindu

Marriage Act (Section 23), the Family Courts Act, 1984 (Section 9) and; the Industrial

Disputes Act, 1947 (Section 10) which explicitly provide for settlement by the same.

The rationale on which the bench majorly rested its reasoning for the judgment was that there

is no bar or restriction on using the Alternative Dispute Resolution mechanisms in either of

the statutes, i.e the NI Act, 1881 or the CrPC, 1973, thereby providing the requisite leverage

to refer the disputes under Section 138 to mediation.

What are the Rights and Liabilities under Negotiable Instruments Act with Special

Reference to Directors and Partners under section 141 of Negotiable Instruments Act?

NEGOTIABLE INSTRUMENTS ACT, 1881

Section 141 - Offences by companies

(1) If the person committing an offence under section 138 is a company, every person who, at the

time the offence was committed, was in charge of, and was responsible to the company for the

conduct of the business of the company, as well as the company, shall be deemed to be guilty of

the offence and shall be liable to be proceeded against and punished accordingly:

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Provided that nothing contained in this sub-section shall render any person liable to punishment

if he proves that the offence was committed without his knowledge, or that he had exercised all

due diligence to prevent the commission of such offence:

2[Provided further that where a person is nominated as a Director of a company by virtue of his

holding any office or employment in the Central Government or State Government or a financial

corporation owned or controlled by the Central Government or the State Government, as the

case may be, he shall not be liable for prosecution under this Chapter.]

(2) Notwithstanding anything contained in sub-section (1), where any offence under this Act has

been committed by a company and it is proved that the offence has been committed with the

consent or connivance of, or is attributable to, any neglect on the part of, any director, manager,

secretary or other officer of the company, such director, manager, secretary or other officer

shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and

punished accordingly.

Explanation.--For the purposes of this section,--

(a) "company" means any body corporate and includes a firm or other association of

individuals; and

(b) "director", in relation to a firm, means a partner in the firm.]

Liability of parties under NI Act

Section 30 to Section 32 and Section 35 to 42 of the Negotiable Instruments Act deal with

the liability of parties to Negotiable Instruments.

Liabilities of parties to Negotiable Instruments are as follows :

1. Liability of Drawer:

According to Section 30 of the Negotiable Instrument Act 1881, The drawer of a bill of

exchange or cheque is bound in case of dishonor by the drawee or acceptor thereof, to

compensate the holder, provided due notice of dishonor has been given to, or received by, the

drawer .

2. Liability of Drawee of Cheque

The drawee of a cheque having sufficient funds of the drawer in his hands properly

applicable to the payment of such cheque must pay the cheque when duly required so to do,

and, in default of such payment, must compensate the drawer for any loss or damage caused

by such default (Section 31 of the Negotiable Instrument Act 1881)

3. Liability of Makers of note and acceptor of bill :

The maker of a promissory note and the acceptor before maturity of a bill of exchange are

bound to pay the amount thereof at maturity according to the apparent tenor of the note or

acceptance respectively, and the acceptor of a bill of exchange at or after maturity is bound to

pay the amount thereof to the holder on demand. In default of such payment as aforesaid,

such maker or acceptor is bound to compensate any party to the note or bill for any loss or

damage sustained by him and caused by such default.(Section 32 of the Negotiable

Instrument Act 1881)

4 . Liability of indorser:

Liability of endorser In the absence of a contract to the contrary, whoever endorses and

delivers a negotiable instrument before maturity, without, in such endorsement, expressly

excluding or making conditional his own liability, is bound thereby to every subsequent

holder, in case of dishonor by the drawee, acceptor or maker, to compensate such holder for

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any loss or damage caused to him by such dishonor, provided due notice of dishonor has

been given to, or received by, such endorser as hereinafter provided. Every endorser after

dishonor is liable as upon an instrument payable on demand.(Section 35 of the Negotiable

Instrument Act 1881).

5.Liability of Prior Parties to a holder in due course

Every prior party to a negotiable instrument is liable thereon to a holder in due course until

the instrument is duly satisfied.(Section 36 of the Negotiable Instrument Act 1881)

A Company must be made party in the complaint under section 138 of Negotiable

Instruments Act. Incharge of a company is a necessary party in the complaint. In Mona Ben

Ketan Bhai Shah Vs. State of Gujarat, JT 2003 SCC (11) 40, the Hon‟ble Supreme Court

said that to fix the liability of a person responsible for the day to day work of a company,

specific averments in the complaint are necessary.

If cheque is being given from the personal account then in that case company is not liable as

held in Kanta Sujatha v. Fertilizers and Chemical Travencore Ltd. (2002) 7 SCC 655.

Provisions of Section 141 of Negotiable Instruments Act are applicable to partnership firms

also.

In S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla and Anr, (2005) 6 Supreme 442, it is

held that it is necessary to ever specifically in a complaint under section 141 of Negotiable

Instruments Act that at the time offence was committed, person was incharge of and

responsible for conduct and business of a company and mere being a director in a company is

not sufficient to make a person liable under section 141 of the Act.

The question before the Supreme Court in this case was whether liability under section 138

and 141 of the N I Act arise on account of holding office by the director as such. The Court

held that the conditions contained in sec 141 are intended to ensure that a person who is

sought to be made vicariously liable for an offence of which the principal accused is the

Company, had a role to play in relation to the incriminating act and further that such a person

should know what is attributed to him to make him liable.

The conclusion is inevitable that the liability arises on account of conduct, act or omission on

the part of a person and not merely on account of holding an office or a position in a

company. Various High Courts have also ruled on similar lines.

It has been commonly used as a defence in these cases for the directors to state that they are

non-executive independent directors and hence they have no say in the day to day matters of

the company.

In Gunmalla Sales Pvt. Ltd. v. Anu Mehta and Ors. 2014 (4) Crimes (SC) 204, it is held

that there is no deemed liability of every director for dishonored cheques. Further, it is stated

that in case of a company following persons are liable for prosecution under 138 of

Negotiable Instruments Act:

i. Employee authorized by the resolution of a company

ii. Employee authorized by power of attorney

iii. Managing Director of the company

iv. Full Time Director of the company

v. Secretary of a company

vi. Manager of a company, where none of the above are available then all the directors of

the company are liable to be prosecuted.

In Sai Tractors Sagar v. Sai Tractors, ILR 2012 MP 1773, it was discussed that who will

be liable in case a company is made an accused in the complaint.

In M/s. Mahaveer Traders v. Ms. Gangadhar and Sons, ILR 2009 MP 286, it was held

that the partner to whom notice was not being given can also be made an accused in the

complaint.

In N. Hariharran Krishnan Vs. J. Thomas (2018) 13 SCC 663 it was held that when

company is the main accused, notice given to the company is sufficient to make company a

party in the complaint. Neither giving notice to the company nor impleading the company as

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a party in the complaint, is fatal to the prosecution of a case under Negotiable Instruments

Act. Complaint can be amended at the initial stage as per the facts and circumstance of a

particular case.

Furthermore, those who were in-charge of the business of a company at the time of

transaction are liable to be made party with the company in the complaint.

If company has been declared sick, cheque given prior to such declaration and dishonored

subsequently then company will be held liable for the prosecution.

If company has been declared insolvent then also proceedings under section 138 will

continue.

If winding up proceedings have been taken place in a company and liquidator has been

appointed in that case also company can be prosecuted under Negotiable Instruments Act.

Parameters applicable to companies are also applicable to firms.

If a firm is a sole proprietorship firm then in that case it is sufficient to make a firm party

through its sole proprietor or vice versa.

Sleeping partners are not liable even if company is wound up or undergoes liquidation. All

the active partners must be made party to the compliant under section 138 of Negotiable

Instruments Act.

There may be many directors and secretaries who are not in charge of the business of the

company at all. The meaning of the words "person in charge of the business of the company"

was considered by Apex Court in Girdhari Lal Gupta v. D.N. Mehta: [1971]3SCR748

followed in State of Karnataka v. Pratap Chand: 1981CriLJ595 and Katta Sujatha v.

Fertiliser & Chemicals Travancore Ltd.: (2002)7SCC655 . Apex Court held that the

words refer to a person who is in overall control of the day to day business of the company.

Court pointed out that a person may be a director and thus belongs to the group of persons

making the policy followed by the company, but yet may not be in charge of the business of

the company; that a person may be a Manager who is in charge of the business but may not

be in overall charge of the business; and that a person may be an officer who may be in

charge of only some part of the business.

It has been held by a plethora of cases that an independent director, by the very nature of his

appointment, is deemed not to have any knowledge of the day to day matters of the

Company.

Comparing Section 141 of the act with Sections 34 and 149 of the IPC, we can see that the

vicarious liability provisions are stricter in the act and, as mentioned above, the maxim of

generalia specialibus non derogant will apply here excluding the jurisdiction of sections 34

and 149 of the IPC.

It is primary duty of the Magistrate to find out whether the complainant has shown that

accused persons falls into one of the categories of persons envisaged in sec. 141. What is

required is the specific accusation against each Director of role. played by him. Onus is on

complainant to make out prima facie case i.e. to show that accused, at the time of

commission of offence, was in charge of and responsible to company. Such person need not

be a Director, Manager, Secretary or other officer of the company. In case of A.K. Singhania

v. Gujrat State Fertilizers Company Ltd. 2014, Cr.L.J. 340 (SC), Apex court observed

that it was not necessary that complaint should contain averments as to who were in charge

and responsible for conduct of the business of company. Court held that it was sufficient if

reading of complaint show substance of accusation disclosing necessary averments. A

detailed scrutiny was also done by the Supreme Court recently in Standard Chartered

Bank v Bank of Maharashtra 2016(2) RCR (Criminal) 778 (SC). The main issue is that

the averments made in the complaint should be adequate for the magistrate to issue process.

This is automatically done if he is the managing director or the signing director of the

cheque. Otherwise, in all other cases, the accused should be said to oversee and responsible

for the conduct of the business of the company. It was held by the Hon'ble Supreme Court

that the complaint under Section 138 is not maintainable without making company a party

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The best defence for a person in such a case is to state that he was an independent director

and had no knowledge of the said cheque.

In case of K. Shrikant Singh vs. North East Security Ltd. and others, J.T. 2007 (9) SC

449, Hon'ble Apex court observed that vicarious liability on the part of a person must be

pleaded and proved and not inferred. In case of Aparna A Shaha vs. Sheth Developers Pvt.

Ltd. 2014 , Apex court took a view that Joint Account holder cannot be prosecuted unless

cheque was signed by each and every person who was Joint Account holder. In this case the

cheque was signed by husband of the appellant. Apex court quashed the proceeding against

the appellant. Court observed that as a natural corollary each and every joint account holder

must sign the cheque before they were considered for criminal action under sec. 138 of the

N.I. Act. In case of Shushatna J. Sarkar & other vs State of Mah. 2014(1) MhLJ 214

complaint was not showing as to what was the role played by petitioner Directors in the

alleged offence. Allegations were vague and were not specifying role of each of petitioners.

It was observed that averments in complaint were not sufficient enough to make them

vicariously liable for offence u/s 138. It has been further observed that “ It is necessary for

the complainant to make specific averments disclosing role of Directors in the alleged

offence. Criminal offence, Criminal liability can be fastened only on those who at the time of

commission of offence were in charge of and were responsible for conduct of business of

company....... It is obligatory on the part of complainant to state in brief as to how and in

what manner the directors, who are sought to be made accused were responsible for the

conduct of business of company at relevant time.”

Earlier it was observed that prosecution of company was not sine qua non for the prosecution

of either persons who are in charge of and responsible for the business of company or any

Director, Manager, Secretary or other officers of company. However, finding that offence

was committed by company is sine qua non for convicting those other persons ( Anil Hada

vs. Indian Acrylic Ltd. (2002) of 1999 Comp. Cases 36 (SC). However, recently in case of

Anil Gupta vs. Star India Pvt. Ltd. Co. & another 2014 Cr.L.J.3884 Hon'ble Supreme

Court has laid down that only drawer of cheque falls within ambit of sec.138 of the Act

whether human being or a body corporate or even a firm. Hon'ble Apex court further

observed that “we arrived at the irresistable conclusion that to maintain prosecution u/s 141

of the Act, arraigning of the company as a accused is to imperative”. Hon'ble Apex court

overruled the decision in Anil Hada's case referred above. In Mainuddin Abdul Sattar

Shaikh Vs. Vijay D. Salvi, 2015(3) RCR (Criminal) 593 (SC) it was held by Hon'ble

Supreme Court that when an employee of a company issues a cheque on his personal account

for discharging the liability of the company, the company/its directors are not liable under

Section 138 of the Act. Personal liability of employee was upheld.

The scope and purport of Section 141 of the NI Act have been considered by a three-Judge

Bench of the Supreme Court of India in S.M.S. Pharmaceuticals Ltd. vs. Neeta Bhalla

(2005) 8 SCC 89. Thereafter, the legal fiction incorporated in Section 141 of the NI Act has

come up for consideration before the Supreme Court in a number of cases like Sabitha

Ramamurthy vs. R.B.S. Channabasavaradhya,: (2006) 10 SCC 581; Saroj Kumar

Poddar vs. State (NCT of Delhi),: (2007) 3 SCC 693; S.M.S. Pharmaceuticals Ltd. (2) vs.

Neeta Bhalla,: (2007) 4 SCC 70; Everest Advertising (P) Ltd. vs. State (Govt, of NCT of

Delhi),: (2007) 5 SCC 54; N. Rangachari vs. BSNL,: (2007) 5 SCC 108; N.K. Wahi vs.

Shekhar Singh,: (2007) 9 SCC 481; Paresh P. Rajda vs. State of Maharashtra,: (2008) 7

SCC 442; DCM Financial Services Ltd. vs. J.N. Sareen,: (2008) 8 SCC 1; Ramrajsingh

vs. State M.P.,: (2009) 6 SCC 729 and K.K. Ahuja vs. V.K. Vara and another,: (2009) 10

SCC 48.

The Supreme Court of India in National Small Industries Corporation Limited vs.

Harmeet Singh Paintal and another, reported in: (2010) 3 SCC 330, has once again

summarised the principle of vicarious liability incorporated in Section 141 of the NI Act in

the following manner:-

39. From the above discussion, the following principles emerge:

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(i) The primary responsibility is on the complainant to make specific averments as are required

under the law in the complaint so as to make the accused vicariously liable. For fastening the

criminal liability, there is no presumption that every Director knows about the transaction.

(ii) Section 141 does not make all the Directors liable for the offence. The criminal liability can

be fastened only on those who, at the time of the commission of the offence, were in charge of

and were responsible for the conduct of the business of the company.

(iii) Vicarious liability can be inferred against a company registered or incorporated under the

Companies Act, 1956 only if the requisite statements, which are required to be averred in the

complaint/petition, are made so as to make accused therein vicariously liable for offence

committed by company along with averments in the petition containing that accused were in-

charge of and responsible for the business of the company and by virtue of their position they are

liable to be proceeded with.

(iv) Vicarious liability on the part of a person must be pleaded and proved and not inferred.

(v) If accused is Managing Director or Joint Managing Director then it is not necessary to make

specific averment in the complaint and by virtue of their position they are liable to be proceeded

with.

(vi) If accused is a Director or an Officer of a company who signed the cheques on behalf of the

company then also it is not necessary to make specific averment in complaint.

(vii) The person sought to be made liable should be in-charge of and responsible for the conduct

of the business of the company at the relevant time. This has to be averred as a fact as there is no

deemed liability of a Director in such cases.

What are the presumptions as provided for under the Negotiable Instruments Act?

Bankers’ Books Evidence Act, 1891; According to section 4 of the Act, 1891, certified

copies of entries in Bankers‟ Book are primary evidence and shall be admitted as such.

Section 5 of the Act, 1891 says Bank employees need not to be called as witness to prove

such entries.

Presumptions provided under section 118, 119 and 139 of Negotiable Instruments Act.

NEGOTIABLE INSTRUMENTS ACT, 1881

Section 118 - Presumptions as to negotiable instruments

Until the contrary is proved, the following presumptions shall be made:--

(a) of consideration--that every negotiable instrument was made or drawn for consideration, and

that every such instrument, when it has been accepted, indorsed, negotiated or transferred, was

accepted, indorsed, negotiated or transferred for consideration;

(b) as to date--that every negotiable instrument bearing a date was made or drawn on such date;

(c) as to time of acceptance--that every accepted bill of exchange was accepted within a

reasonable time after its date and before its maturity;

(d) as to time of transfer--that every transfer of a negotiable instrument was made before its

maturity;

(e) as to order of indorsements--that the indorsements appearing upon a negotiable instrument

were made in the order in which they appear thereon;

(f) as to stamps--that a lost promissory note, bill of exchange or cheque was duly stamped;

(g) that holder is a holder in due course--that the holder of a negotiable instrument is a holder in

due course: provided that, where the instrument has been obtained from its lawful owner, or

18

from any person in lawful custody thereof, by means of an offence or fraud, or has been obtained

from the maker or acceptor thereof by means of an offence or fraud, or for unlawful

consideration, the burden of proving that the holder is a holder in due course lies upon him.

Section 119 - Presumption on proof of protest

In a suit upon an instrument which has been dishonoured, the Court shall, on proof of the

protest, presume the fact of dishonour, unless and until such fact is disproved

Section 139 - Presumption in favour of holder

It shall be presumed, unless the contrary is proved, that the holder of a cheque received the

cheque of the nature referred to in section 138 for the discharge, in whole or in part, of any debt

or other liability.]

Under section 118 of the Act there are presumptions regarding:-

i. Consideration Date

ii. Time of acceptance

iii. Time of transfer

iv. Order of endorsement

v. As to stamp that holder is a holder in due course.

Reason for these presumptions is that a negotiable instrument passes from hand to hand on

endorsements and it would make trading very difficult and negotiability of the instrument

impossible, unless certain presumptions are made. The presumption, therefore, is a matter of

principal to facilitate negotiability as well as trade as held in Kumar Exports Vs. Sharma

Carpets, (2009) 2 SCC 513

Section 114 of Evidence Act is a general provision which enables the court to presume,

though not obliged to do so, that a bill of exchange or a promissory note was founded on a

good consideration.

On the other hand Section 118 of the Negotiable Instruments Act, however enacts a special

rule of evidence which operates between parties to the instrument and does not affect the rule

contained in section 114 of the Evidence Act.

The phrase used in section 118 of Negotiable Instruments Act is “Until the contrary is

proved” and “Unless the contrary is proved”, as used in section 139 of the Act mean that

presumptions under both the sections are rebuttable presumptions. Once execution of the

cheque is admitted, the presumption under section 118(a) would arise that it is supported by a

consideration. The accused can rebut such presumption. If the accused discharges the initial

onus of proof that consideration was improbable or doubtful or illegal, the onus would shift

on the complainant to prove it as the matter of fact. If complainant fails to prove the same

that will disentitle him for the relief on the basis of the Negotiable Instruments Act.

Under section 119 of the Negotiable Instruments Act, presumption related to fact of dishonor

is also a rebuttable presumption.

Recently, Hon‟ble Supreme Court in Rohit bhai Jeevan Lal Patel v. State of Gujarat and

Anr., 2019 Law Suit SC 820 and Basalingappa Vs. Mudibasappa 2019 SCC Online SC

491,has discussed in detail regarding evaluation of evidence in offences under the Negotiable

Instruments Act.

Provisions regarding estoppel as described in the Negotiable Instruments Act and Indian

Evidence Act.

Under section 120, 121, 122 of Negotiable Instruments Act, maker, drawer acceptor of a bill

of exchange are not permitted to deny the validity of the instrument as originally made or

drawn and to deny the payee‟s capacity, at the date of the note or bill, to endorse the same.

Likewise endorser of a negotiable instrument is also not permitted to deny the signature or

capacity to contract of any prior party to the suit, in a suit by a subsequent holder.

Section 120 - Estoppel against denying original validity of instrument

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No maker of a promissory note, and no drawer of a bill of exchange or cheque, and no

acceptor of a bill of exchange for the honour of the drawer shall, in a suit thereon by a

holder in due course, be permitted to deny the validity of the instrument as originally made

or drawn.

Section 121 - Estoppel against denying capacity of payee to indorse

No maker of a promissory note and no acceptor of a bill of exchange 1[payable to order]

shall, in a suit thereon by a holder in due course, be permitted to deny the payee's capacity,

at the rate of the note or bill, to indorse the same.

Section 122 - Estoppel against denying signature or capacity of prior party

No indorser of a negotiable instrument shall, in a suit thereon by a subsequent holder, be

permitted to deny the signature or capacity to contract of any prior party to the instrument.

PRESUMPTION

Basalingappa v. Mudibasappa, AIR 2019 SC 1983

Held: The Hon‟ble Supreme Court held that once the execution of cheque was admitted,

Section 139 of Act mandated a presumption that cheque was for discharge of any debt or

other liability. Presumption U/s 139 was a rebuttable presumption and onus was on accused

to raise probable defence. Standard of proof for rebutting presumption was that of

preponderance of probabilities. To rebut the presumption, it was open for accused to rely on

evidence led by him or accused could also rely on materials submitted by complainant in

order to raise a probable defence. Inference of preponderance of probabilities could be drawn

not only from the materials brought on record by parties but also by reference to

circumstances upon which they rely. It was not necessary for accused to come in witness box

in support of his defence, Section 139 imposed an evidentiary burden and not a persuasive

burden.

THE NEGOTIABLE INSTRUMENTS (AMENDMENT) ACT, 2018-

HIGHLIGHTS

The Negotiable Instruments (Amendment) Act, 2018 was notified on 02-08-2018.

The following amendments have been made —

Section 143 — now introduces a new proviso 143A, giving power to a Court to try an

offence under S. 138 to order the drawer of cheque to pay interim compensation to the

complainant in summary trials/summons case where he pleads not guilty to the accusations in

the complaint. Furthermore, the interim compensation shall not exceed 20% of amount of the

cheque and shall be payable within 60 days from date of the order.

Recovery of fine shall be same as under Section 421 of the Code of Criminal Procedure,

1973.

In cases of acquittal, the Court is now empowered to direct the complainant to repay to the

appellant the amount so released, at interest rates as prescribed by RBI.

Section 148 — now empowers the appellate court, for appeals against conviction under S.

138, to direct the appellant to deposit a minimum 20 % of the fine/compensation awarded, in

addition to interim compensation paid under S. 143A.

LATEST JUDGMENTS

In the case of Shiv Kumar Alias Jawahar Saraf v. Ramavtar Agarwal CRIMINAL

APPEAL NO.1688 OF 2017 decided on 19.02.2020; The Supreme Court has observed that

the rebuttal of presumption available under Section 139 of Negotiable Instruments Act can

20

only be done after adducing evidence. The Hon‟ble Supreme Court agreed with the High

Court‟s view that rebuttal of presumption cannot be looked into at the stage of the Court

taking cognizance of the offence.

The High Court, while refusing to quash the complaint, had observed that while registering

the case all that Court would have to see is whether there is a prima facie case made out

meeting the conditions precedent as envisaged under Section 138 of NI Act. It had observed

thus:

The presumption available under Section 139 of NI Act has to be rebutted and that rebuttal can

only be done after adducing evidence. This, by itself clearly reflects that the rebuttal presumption

cannot be looked into at the stage of the Court taking cognizance of the offence and registering

the case all that Court would have to see is whether there is a prima facie case made out meeting

the conditions precedent as envisaged under Section 138 of NI Act, which in the instant case, in

the opinion of this Court, the Respondent has in fact been able to establish and fulfill all such

ingredients. As has been stated in the preceding paragraphs since there is a presumption to be

drawn of there being a debt or liability in part or in whole of the drawer to the holder of the

instrument, the Court below cannot be said to have faulted upon in taking cognizance and in

registering the offence. Since it is a rebuttal presumption and all the contentions and averments

made by the counsel for the Petitioner being his defence, it would be open for him to raise all

these grounds at the stage of leading evidence including the defence of existence of legally

enforceable debt or liability. However, there can be no doubt that at the time of filing of

complaint there was always initial presumption which would be in favour of the complainant.

In D. K. Chandel v. M/S Wockhardt Ltd. CRIMINAL APPEAL NO(S). 132 OF 2020

decided on 20.01.2020; The Supreme Court has observed that the production of the account

books/cash book may not be relevant in a criminal case filed under Section 138 of the

Negotiable Instruments Act. The Court observed that;

"Production of the account books/cash book may be relevant in the civil court; but may not be so

in the criminal case filed under Section 138 of the N.I.Act. This is because of the presumption

raised in favour of the holder of the cheque.”

In Surinder Singh Deswal @ Col. S.S. Deswal Vs. Virender Gandhi CRIMINAL

APPEAL NOS.1936-1963 OF 2019 decided on 08.01.2020- The Supreme Court has

reiterated that Section 148 of the Negotiable Instruments Act is retrospective, while Section

143A is not.

The Hon‟ble Supreme Court recently in M/S Shree Daneshwari Traders v. Sanjay Jain

CRIMINAL APPEAL NOS.61-62 OF 2011 decided on 21.08.2019 has observed that

evidence adduced by the Complainant in a Cheque bounce case (under Section 138

Negotiable Instruments Act) to raise statutory presumption under Section 139 cannot be

discarded merely on the ground that there were no such averments in the complaint.

While setting aside the concurrent findings of the Trial Court and the High Court, the bench

convicted the accused and observed:

The oral and the documentary evidence adduced by the complainant are sufficient to prove that

it was a legally enforceable debt and that the cheques were issued to discharge the legally

enforceable debt. With the evidence adduced by the complainant, the courts below ought to have

raised the presumption under Section 139 of the Act. The evidence adduced by the respondent-

accused is not sufficient to rebut the presumption raised under Section 139 of the Act. The

defence of the respondent that though he made payment for the commodities/rice bags, the blank

cheques were not returned by the appellant-complainant is quite unbelievable and unacceptable.

Anand Sharma v. State Of Rajasthan S.B. Criminal Miscellaneous (Petition) No.

308/2020 decided on 22 April, 2020

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The Hon‟ble Rajasthan High Court placed reliance on the judgment of the Hon‟ble Supreme

Court in Surendra Singh Deswal @ Col. S.S. Deswal & Ors. Versus Virender Gandhi &

Anr. in Criminal Appeal No.1936-1963 of 2019 dated 8.1.2020 and held that;

When suspension of sentence by the trial court is granted on a condition, non- compliance of the

condition has adverse effect on the continuance of suspension of sentence. The Court which has

suspended the sentence on a condition, after noticing non- compliance of the condition can very

well hold that the suspension of sentence stands vacated due to non-compliance.

Notable Judgments of the Hon’ble Rajasthan High Court on Negotiable Instruments Act

I. Biran N. Shah and Ors. v. Sangam Suitings S.B. Criminal Misc. Petition Nos. 3559,

3551, 3561 and 3562 of 2019 decided on 06.02.2020

Negotiable Instruments Act, 1881, Sec. 138-Dishnour of cheque--Jurisdiction of Court--

Complaints filed at the Courts of Bhilwara--Cheques were presented in the Bank at Mumbai and

were dishonored by Banks at Mumbai--No part of cause of action took place at Bhilwara--Held--

Complaints could neither have been entertained nor the same can be prosecuted in the Court at

Bhilwara as the said Court has no territorial jurisdiction to try these cases.

II. Petro 6 Engineering and Construction Private Limited and Ors. v. New Laxmi

Engineering and Trolley Works S.B. Criminal Misc. (Pet.) Nos. 5192/2019 and

3019/2018 decided on 13.01.2020

Prayer seeking quashing of proceedings on the ground that a certain General Manager of the

Company was not a signatory to the cheque against which complaint was filed by the

complainant.

The Hon‟ble Rajasthan High Court considering the language of Section 141(1) of the N.I. Act

held that there exists clear allegation of the complainant in the complaint that the petitioner No. 2

being the General Manager of the Company, was responsible for its day to day affairs. Thus, the

burden would be on the accused to prove at the trial that he was not actually responsible for the

affairs of the Company and then only, he can seek exoneration.

III. Shri Ram Transport Finance Co. Ltd. v. State of Rajasthan and Ors. 2017 (4) RLW

2875(Raj.)

Negotiable Instruments Act, 1881, Sec. 138 and 139 - Dishonour of cheque given for the full and

final repayment of Loan amount--Burden of proof--Accused denied his liability towards

disputed cheque--Complaint and the evidence led in support thereof is bereft of any particulars

regarding the loan transaction--Burden of proving facts essential to unfurl the necessary

ingredients of offence u/Sec. 138 of the N.I. Act and the existence of the liability is upon the

complainant--Held--Complainant failed to make out a case for holding the accused guilty of

offence u/Sec. 138--Acquitted.

IV. Bhagwati Kumar Gupta v. State of Rajasthan and Ors. 2013 (2) RLW 1788 (Raj.)

Contention that the mandatory notice for the demand of money was not served upon the

petitioner personally and therefore, it cannot be considered to have been served to him and as

such, the proceedings of complaint are vitiated.

Relying on the Judgments of the Hon‟ble Supreme Court, the Rajasthan High Court held that the

onus on the holder of the cheque before launching a prosecution under Section 138 of the Act is

only to the extent of sending the notice to the correct address of the drawer. Thereafter, the

necessary consequences as enshrined in Section 27 of the General Clauses Act would follow, as

per which it has to be presumed that the notice has been served on the addressed.

Who at the correct address receives the notice cannot be the control of the complainant. It would

be too harsh and virtually an absurd proposition to require from the holder of the cheque to

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manage the affairs in such a fashion that the same is served on the addressee himself. It is only in

order to avoid such situation that the Legislature enacted Section 27 of the General Clauses Act

providing for presumption of service, even in cases, wherein the notice is not accepted by the

addressee or cannot be served for various other reasons. As interpreted by the Hon'ble Apex

Court in C.C. Alva Haji's case (C.C. Alavi Haji vs. Palapetty Muhammed & Anr., (2007) 3

SCC Cri. 236), even a refusal to accept the notice has been considered to be a sufficient service

upon the addressee.

CONCLUSION

Negotiable instruments are the documents which are related to the business transactions.

Negotiable instruments play a major role in trade world. We can use negotiable instruments

for international trades.

An instrument can become negotiable either by statute or by mercantile usage. These

instruments are in written form so in case of non- payment, the person to whom the payment

is to be made can sue the other person by whom the payment shall be made. Bill of exchange,

cheque and promissory notes are three important negotiable instruments with different

features. These are the instruments which are broadly used for international trade. These

instruments are freely transferable by one person to another person any number of times.

The amendments to the NI Act are a great effort aimed at strengthening efficacy and

expediency which will help in speedy disposal of cases and also discourage the frivolous and

unnecessary litigation. Further, it upholds the interests of the complainant by providing

interim compensation and ordering payment by the accused in case of appeal against

conviction. The Amendment Act is certainly a positive step towards enhancing the credibility

of cheques and would give impetus to trade and commerce.

These negotiable instruments are still in use even after the electronic revolution. The

electronics revolution is considered as the next major step which replaces the negotiable

instruments.