Source: https://www.pahujalawacademy.com/nia/
Timestamp: 2019-04-26 00:35:50+00:00

Document:
The Negotiable Instrument Act was originally drafted in 1866 by the 3rd Indian Law Commission and introduced in December, 1867 in the Council and it was referred to a Select Committee. Objections were raised by the mercantile community to the numerous deviations from the English Law, which it contained.
The Bill had to be redrafted in 1877. After the lapse of a sufficient period for criticism by the Local Governments, the High Courts and the chambers of commerce, the Bill was revised by a Select Committee. Inspite of this Bill could not reach the final stage. In 1880 by the Order of the Secretary of State, the Bill had to be referred to a new Law Commission.
NI Act Received assent on 09th December 1881 and came into force on 1st March 1882.
The Negotiable Instruments Act was prima facie intended to lay down the whole law regarding cheques, bill of exchange and promissory notes (Preamble of the Act).
It is important to note that Negotiable Instruments Act is statue dealing with particular form of contract and law laid down for special cases must always overrule provisions of general character (Contract Act).
Every document which entitles a person to a sum of money and which is transferable by mere delivery or indorsement and delivery is entitled to be called a ‘negotiable instrument’.
The main difference between a Negotiable Instrument and other transferable documents is that in case of Negotiable Instrument, the title of transfer in good faith and for consideration is a good title even though the title of transferor may be defective, whereas in case of other documents, transferee would get the similar title as that of the transferor. Therefore, NI is an exception to the Maxim “Nemo dat quo non Habet”(No one can transfer better title than he himself has).
It is an instrument in writing (not being a bank-note or a currency note) containing an unconditional undertaking signed by the maker, to pay a certain sum of money only to, or to the order of, a certain person, or to the bearer of instrument.
In writing and signed by the maker.
No particular form is prescribed a promise contained a letter will suffice.
The promise to pay money should be unconditional or subject only to a condition which according to the ordering experience of mankind is bound or certain to happen.
Other than a bank note or currency note.
A currency or bank note can’t be considered a promissory note.
It is an instrument in writing containing an unconditional order signed by the maker, directing a certain person, to pay a certain sum of money only to, or to the order of, a certain person or to the bearer of the instrument.
It is of the essence of a bill of exchange that the drawee orders the drawee to pay money to the payee. As a bill of exchange is an ‘Order’, it is necessary that it must in its terms be imperative and not precetive.
As it is of the essence of bill that it should be payable at all events, this requisite must appear on its face with reasonable certainty. A bill of exchange cannot be drawn so as to be payable conditionally. The drawer’s order to the drawee must be unconditional and should not make the payment of bill depend on contingency.
Three parties are necessary to a bill of exchange the “drawer” (maker of the bill), the “Drawee” (the person who is directed to pay the bill), and the “Payee” (the person to whom or to whose order the amount is payable, unless the bill is payable to bearer).
The drawee must be named or otherwise indicated in the bill with reasonable certainty. A bill must state with certainty the person to whom payment is to be made. A bill of exchange ought to specify to whom the same is payable, for in no other way can the drawee, if he accepts it, know to whom he may properly pay it, so as to discharge himself from all further liability.
The instrument must certain an order to pay money and money only and the sum payable must be certain.
A cheque is a Bill of Exchange drawn on a specified banker and not expressed to be payable otherwise then on demand.
All cheques are bills of exchange, but all bills of exchange are not cheques.
The “holder” of a promissory note, bill of exchange, or cheque means any person entitled in his own name to the possession thereof and to receive or recover the amount due thereon from the parties thereto.
Where the note, bill or cheque is lost or destroyed, its holder is the person so entitled at the time of such loss or distinction.
Holder, therefore, means only a ‘de jure’ holder and not merely a ‘de facto’ holder.
The payee (I promise to pay Rs.5000/- to X; X is holder.
Section 78 payment of amount due on a promissory note, bill or cheque must in order to discharge the maker, or acceptor, be made to the holder of the instrument.
Reading the Section 8 and 78 together, it is clear that the person to whom the payment should be made in order to discharge the maker or the acceptor from all liability under the instrument is the “holder” (or payee) of instrument. The words ‘entitled in his own name’ (in Section 8) are very significant.
Thus, a person in mere possession of instrument has no right to recover the amount unless he has a right to do so.
A person claiming to be the holder of an instrument should be the owner thereof at law, whatever be his position in equity. Holder only means a de jure (holder in law) and not merely a de facto (holder in fact).
The definition implies that the holder has a right of suit on the instrument. He is one who has a right to receive or recover the amount due on the instruments from the parties thereto. Thus a person to quality as a holder should have derived title to the instrument in the lawful manner.
Holder in due course” means any person who for consideration became the possessor of a promissory note, bill of exchange or cheque if payable to bearer, or the payee or indorsee thereof, if payable to order, before the amount mentioned in it became payable, and without having sufficient cause to believe that any defect existed in the title of the person from whom he derived his title.
The title of a HDC becomes free from all equities and the defence which could have been pleaded against the prior parties can’t be pleaded against a HDC. Thus, a holder stands in a less advantageous position than a HDC.
Every holder is deemed prime facie to be a HDC. The burden of proving his title doesn’t lie on him. Provided that, where the instrument obtained by means of an offence or fraud from the lawful owner, or obtained from the maker or acceptor by means of an offence or fraud, or for unlawful consideration, the burden of proving that the holder is a HDC lies upon him.
When a bill of exchange is payable to the drawee’s order and the drawer is a fictions person (thereby meaning that payee is also a fictions person), the accept of such a bill of exchange will be liable to a HDC, if the latter can show that he got the bill under an endorsement by the same hard as the drawer’s signature and purporting to be made by the drawer.
Transfer of rights even when delivery was conditional or for specific purpose only (section 46 and exception to section 48) A HDC will get a good title even though the original transfer of NI was for a specific purpose only and not with the object of transferring the property therein (eg. If the servant to whom a person delivers the instrument for safe custody transfers the same to a HDC).
When a NI has been lost or has been obtained by a person by means of an offence (say, theft) or by fraud, or for an unlawful consideration, a person having such a possession of instrument can’t claim any right is respect of any amount due on NI. But, if such an instrument is transferred to a person as a HDC, he will get a good title.
Section 58, which protects a HDC where a NI has been obtained by means of an offence does not apply to a case of forgery. There is a great difference between a defect of title in which case a HDC is protected- and an entire absence of title as in case of forgery- in which case he derives no title.
The holder of a NI who derives title from a HDC, has the rights thereon of that HDC. In other words, a holder who receives an instrument from a HDC gets the rights of HDC even if he had knowledge of the prior defects, provided that he was not a party to them.
The holder deriving title from a HDC stands in the shoes of that holder and can sue the acceptor, drawer, and all prior parties whom the holder himself could home sued. But it is not necessary that the holder with a derivative title should have given consideration for the instrument.
A person taking a NI after its maturity has the rights thereon of a transferor. Thus, a person taking an instrument after maturity will not be HDC and will not be capable of having a better title than that of the transferor.
Provided that any person who, in good faith and for consideration becomes the holder, after maturity of a promissory note or bill of exchange made, drawn a accepted without consideration for the purpose of enabling some party thereto to raise money thereon may recover the amount or note or bill from an prior party.
The maker or drawer of a NI are not permitted and allege against a HDC, that the NI as originally drawn was not valid.
Until the contrary is proved, the following presumption shall be made the presumptions are thus rebuttable.
In case of a NI, plaintiff has not to show that he had recveived the same for consideration. It is presumed that every NI was made/ drawn for consideration and that every such instrument, when it has been accepted, indorsed, transferred, was accepted, indorsed etc. for consideration.
that every NI behaving a date was made/ drawn a such date.
That every accepted bill of exchange was accepted with a reasonable time after its date and before its maturity.
Every person capable of contracting, according to the law to which he is subject, may bind himself and be bound by the making, drawing, acceptance, indorsement, delivery and negotiation of a promissory note, bill of exchange or cheque.
Section 28 reads as Liability of agent signing.—An agent who signs his name to a promissory note, bill of exchange or cheque without indicating thereon that he signs as agent, or that he does not intend thereby to incur personal responsibility, is liable personally on the instrument, except to those who induced him to sign upon the belief that the principal only would be held liable.
Section 29 reads as Liability of legal representative signing.—A legal representative of a deceased person who signs his name to a promissory note, bill of exchange or cheque is liable personally thereon unless he expressly limits his liability to the extent of the assets received by him as such.
Negotiation consists in transfer of a NI from are person to another with an intention to constitute the transferee as the holder (owner) of that instruments. The instrument must have been transferred with an intention to transfer the rights.
The right in the instrument are not transferred to the indorsee unless the indorsement the same has been delivered.
The indorsement m therefore means signature of the person for the purpose of transfer of right to another person .
Section 32 deals with the liability of the acceptor or maker or bill of exchange. The first duty is to make the payment and if the dishonor they require to compensate for the loss caused because of dishonor.
The Liability of the drawer of the bill is there till it is accepted by the drawee. After the acceptance the liability of the drawee is primary in nature.
The liability of the drawer of the cheque is is primary in nature. This is dealt by Section 30 of the NI Act. In a cheque the drawee is a bank and it has no or limited liability in case of dishonor of the cheque.
The liability of the unjustified dishonor of cheque is dealt in section 31 of NI Act. Section 31 reads as 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.
There are various justified grounds for refusal from honour of the cheque like where cheque is post dated or cheque is outdated etc.
The drawer must have failed to make the payment within 15 days of the receipt of the notice.
The cheque must be issued to discharge legally recoverable debt or other liability.
The clause (a) of proviso to Section 138 provides that the cheque must be presented for encashment within six months from the date on which it is drawn or within the period of its validity, whichever is earlier.
Generally, a cheque remains valid for a period of six months from the date it bears. The period of six months mentioned in proviso (a) to Section 138 of the Act begins to run only from the date mentioned in the cheque and not from the date of drawl of the cheque. Here it is pertinent to mention the validity period of cheques has been reduced from 6 months to 3 months effective from 1st April, 2012. However, a cheque with the reduced validity period has to be presented for encashment before the expiry of said reduced validity period. A cheque can be presented any number of times during the period of its validity. However, action against the drawer can be taken only once.
To attract Section 138 the cheque must be presented within period of its validity with the banker of the drawer. If the cheque reached the banker of the drawer after expiry of period of its validity even though presented in due time to the banker of the payee, then offence under Section 138 is not made out.
A cheque may be dishonoured on various grounds. Section 138 of Act prescribed only two grounds, namely, ‘insufficient funds’, and ‘exceeds arrangements’. The scope and applicability of the provision has been widened and extended through various judicial pronouncements, and the cheques dishonoured on grounds other than the two mentioned in Section 138 have been treated at par with the grounds stated in Section 138.
A cheque returned on the ground of ‘refer to drawer’, ‘account closed’, ‘payment stopped’, attracts Section 138 of the Act. A distinction has been drawn in cases where the funds in the bank account of the drawer were sufficient to clear the amount of cheque and the stop payment notice had been issued for some other valid reason and in such cases the offence under Section 138 would not be made out.
A cheque returned on the ground ‘signature incomplete’, ‘no account in the name of the drawer’, ‘material alteration’, ‘structural defect’ i.e. any defect in its form, want of signature, date not properly written, figures of amount over written or erasures in drawer’s signature will not attract Section 138 of the Act. A cheque dishonored on account of two reasons i.e difference in signature and insufficient funds would also attract liability under Section 138 N.I. Act.
In terms of amended clause (b) of the proviso to Section 138 of the Act, the payee or the holder in due course of the cheque is required to make a demand for the payment of cheque amount by giving notice in writing to the drawer of the cheque, within 30 days of the receipt of information of the return of the cheque as unpaid.
The purpose of giving notice is to bring within the knowledge of the drawer of the cheque that it has been dishonoured and to put him on guard with regard to making of payment covered by that cheque within the time prescribed so as to avoid prosecution.
The delay in sending the notice beyond the prescribed limit of 30 days cannot be condoned. The day on which the intimation was received has to be excluded. The notice has to be in writing and verbal intimation regarding dishonour of cheque cannot be treated as demand within the meaning of proviso to Section 138. No specific form or wordings have been prescribed under the Act; however, the demand of amount of cheque should be either in specific words or at least it should be inferred from the wordings of the notice.
For more than one-dishonoured cheques, demand can be raised in one notice, however, the demand should be specific and a clear indication must reach to the drawer as regards the dishonoured cheques, to which the amount demanded relates. At the same time there is nothing wrong in common notice being jointly addressed to all persons responsible for the offence. Notice of demand shall not become invalid merely on the ground that any other amount such as interest, costs, other outstanding dues besides dishonoured cheque amount, has been claimed in it, however, the amount of the cheque should be identified and severable.
The drawer of cheque is given 15 days time from the receipt of notice for making payment to the payee or to the holder in due course of the cheque as per clause (c) of the proviso to Section 138. A letter for intimating dishonour of cheque and calling for payment of outstanding dues but not within 15 days as contemplated under sub-clause (c) of Section 138, cannot be said to be a legal notice. It is only when a notice calling upon the drawer to make payment of the cheque amount within 15 days of the receipt thereof is issued pursuant to the last presentation of the cheque, which can be termed as a notice under Section 138. However, Madras High Court has taken the view that the failure to specify that 15 days time is given, or mentioning of time of less than or more than 15 days in the notice for making payment does not affect the validity of the notice and the right of the drawer to make payment within 15 days of receipt thereof.  Similar view has been taken by Delhi High Court holding that merely because the complainant demanded payment of the dishonoured cheque amount from the accused within 30 days instead of 15 days, the demand notice would not become illegal. Section 138 does not prescribe any specific mode of service of notice of demand. A notice under Section 138 can be sent by post, telegram, fax, internet, E-mail etc. or can be served personally.
Where the notice is sent by registered A.D post at the correct address of the drawer, and the acknowledgment card is returned without signature or if somebody else other than the addressee receives it, it shall be deemed to have been duly served. A notice sent by registered post at the correct address, draws a presumption of valid service and within local area, service can be presumed within 2/3 days of dispatch but not later than 5 days.
Where the notice sent by registered post at the correct address is returned with the endorsement of the postal authorities as ‘not available in the house’, ‘house locked’, ‘shop locked’, ‘not available at the given address’, ‘refused’, ‘unclaimed’, the notice must be deemed to have been served and there shall be a constructive service of notice.
Where the notice by post is dispatched with the correct address on it, a presumption of proper service under S. 27 General Clause Act arises. It shall be on the sendee to prove that it was not really served and that he was not responsible for such non-service.
Where there is a confusion in the mind of the payee as to whether the notice has been served or not, then it is complainant’s duty to verify the fact from the postal authorities. The Court in the absence of any clear date of service of notice can raise the presumption at the initial stage, however, during the trial, the exact date of service of notice is to be proved by the complainant as it would be relevant in determining whether the complaint is pre-mature or barred by limitation.
Where the drawer of the cheque is a company or a partnership firm, notice to the company or the firm, as the case may be, is sufficient compliance and it is not necessary that the notice be given to each of the directors of the company or partners of the firm.
The proviso (c) to Section 138 provides that the drawer has 15 days time to make the payment in respect of the dishonoured cheque to the payee or to the holder in due course, from the date of receipt of notice of demand served under proviso (b) to Section 138. It is the failure of the drawer within the said 15 days of receipt of notice which gives rise to a cause of action for filing the complaint under Section 138.
The payee should receive the payment against the dishnoured cheque within 15 days. The payment received by the payee beyond the period of 15 days though was sent within 15 days is no defense and the complaint shall be maintainable. Before giving notice under clause (b) to the Section 138, a cheque can be presented any number of times for encashment during its validity period and with each dishonour a fresh right accrues in favour of the payee, but once the notice under Section 138 (b) is given, it culminates into arising of a cause of action on failure of the drawer to make the payment within 15 days of receipt thereof, and the complaint must be filed on the basis of said notice.
The cause of action arises only once and once cause of action has arisen and the complaint not filed, the payee cannot file complaint on presenting the cheque afresh, getting it dishonoured and serving notice of demand afresh and default thereon.
Where after the receipt of notice under Clause (b) of Section 138, the drawer requests for some more time for payment or asks the payee to represent the cheque afresh, and the cheque is again dishonoured and fresh notice is issued, there is a question of waiver of notice and the complaint shall not be rejected as not maintainable. Where the receipt of first notice is denied or has returned back unserved, the complaint cannot be rejected on the ground of being instituted on a second notice.
Where the drawer makes the payment of the dishonoured cheque amount in compliance to the notice of demand but does not pay the costs etc. no cause of action under Section 138 arises in his favour as civil proceedings lie for recovery of such sum.
Section 138 of the Act requires that the cheque must be issued for the discharge, in whole or in part, of any debt or other liability. The “debt or other liability” means a legally enforceable debt or other liability.
The debt or other liability may be due from any person. It is immaterial that the cheque was issued for the drawer’s own liability as it can be issued for the discharge of another person’s debt or liability. However, the criminal liability shall be of the drawer of the cheque and not of the person for whose liability the cheque was issued. The words used in Section 138 are ‘any debt or liability’, which include a cheque drawn by one person towards legally enforceable debt or liability of another. It is not necessary that the cheque should be issued in the name of the person with whom transaction has taken place or against whom the debt or liability is owed.
In a recent case, Delhi High Court observed that “A cheque given as security is not to be encashed in present. It becomes enforceable if an obligation in future is not enforced. It is not tendered in discharge of a liability which has accrued. Where a cheque forms part of a consideration under a contract, it is paid towards a liability”. Whether a cheque is given as security or not is a matter of fact and has to be decided after trial and proceedings cannot be quashed.
A cheque issued by a guarantor is also treated to have been issued for the purpose of discharging any debt or liability, therefore, on dishonor of such cheque a complaint under Section 138 is maintainable.
If the cheque is given by way of gift or present and is dishonoured, the drawer will not be liable for prosecution under Section 138.
Section 139 deals with presumption of law in favour of holder of the cheque. It provides that unless the contrary is proved, it shall be presumed that the holder of a cheque received the cheque for the discharge, in whole or in part, or any debt or other liability. It is a rebuttable presumption of law and the burden of proving that a cheque has not been issued for a debt or liability is on the accused. When presumption is not rebutted, the offence is held to be committed. Section 139 of the Act raises a presumption in favour of holder of cheque that same had been issued to him for discharge of debt or liability, however, it does not raise a presumption that debt was legally recoverable.
In a recent case, Supreme Court dealt extensively with the question of onus upon the accused to rebut the presumption under Section 118 and 139 of the Act. The Court held that accused has to discharge the onus to rebut the presumption under Section 118 and 139 of the Act. However, he is not necessarily required to enter into the witness box in order to discharge this presumption and he can do so by relying upon the evidence led by prosecutor as well. It is duty of the complainant to prove guilt of the accused beyond all reasonable doubts though the onus cast upon the accused to rebut the presumption is based upon the principle of preponderance of probabilities.
A cheque drawn for a time barred claim, on delivery to the other person, becomes a valid consideration for another agreement and its dishonour can invite prosecution under Section 138 and such a person shall not be entitled to plead that the claim had became time barred and he is not liable under Section 138. However, in Girdhari Lal Rathi v. P.T.V. Ramanujachari and Anr., and Smt. Ashwini Satish Bhat v. Sh. Jeevan Divakar Lollenkar & Anr, the Courts have held that time barred loan is not legally recoverable debt as defined in the explanation to Section 138 of the Act, hence a complaint under Section 138 of the Act shall not be maintainable.
Since company being not a physical body itself cannot do anything unless it has human brain and activities behind it, so if any offence is committed by the company, then vicarious liability of those human beings who may be directors, officers or employees of the company arise. Section 141 of N.I.Act deals with the matter of vicarious liability of those persons. Every person who, at the time of 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. When a company is the drawer of the cheque, such company is the principal offender and the remaining persons are made offenders by virtue of legal fiction created under Section 141 of the Act.
The actual offence should be committed by the company and then alone the other two categories would also become liable. Prosecution of the company is a sine qua non for the prosecution of other persons. It means that where the actual offence is committed by the company, directors alone cannot be prosecuted without prosecuting the company. Managing director of a company is presumed to be vicariously liable for the offence under Section 138. Liability depends on role one plays in the affairs of company and not on designation or status, which he holds in company.
There is no need to say that Managing Director or Joint Managing Director is in charge of the affairs of the Company.
In respect of Director who signed the cheque, there is no need to make specific averment that he was in charge of the affairs of the Company.
In respect of other Directors or Secretary or Manager of the Company, it is necessary to aver that he was in charge of the affairs of the Company.
In respect of other officers than the one referred to herein above, their specific role in respect to the issue of cheque is to be explained in the complaint.
(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.
(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 the accused therein vicariously liable for offence committed by the company along with averments in the petition containing that the 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.
(v) If the accused is a Managing Director or a 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 the 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 the 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.
The pendency of proceedings before the BIFR under Sick Industrial Companies (Special Provision) Act, 1985 or for winding up is no bar for the criminal prosecution under Section 138.
Complainant has to attribute some particular act or omission on the part of the accused director to connect him to the offence. It must be shown in the complaint how this particular accused is responsible for the offence being a director and on what basis such allegations are being made. Simple bald allegations and repetition of the language of Section 141 of the Act without giving any basis on which such allegations are made, accused director cannot be summoned. If at any subsequent stage, complainant is able to produce evidence against any accused which can fasten criminal liability for the offence on him; he can be summoned in exercise of powers under Section 319 Cr.P.C.
Where the accused persons had participated in the negotiations with the complainant and were aware of transaction in question, then their position in the company is not relevant and they cannot be discharged. If any offence is committed by company then every person who is director or employee of the company is not liable. Only those persons would be held liable if at the time when offence was committed he was in charge and was responsible to the company for the conduct of the business of the company as well as the company. Merely being a director of the company in the absence of above factors will not make him liable. To launch a prosecution therefore, against the alleged directors there must be a specific allegation in the complaint as to the part played by them in the transaction. There should be clear and unambiguous allegation as to how the directors are in charge and responsible for the conduct of the business of the company. The description should be clear. In the absence of any averment or specific evidence the complaint cannot be entertained. Merely because it is alleged that they were responsible for carrying out the business of the company will not meet the requirement of law. There cannot be joint and several liability in this regard.
When the accused has not issued the cheque and there is no allegation that he was responsible for the dishonor of the cheque, then simple status of accused being a director is not sufficient as specific allegations are required and the liability depends upon the role one plays in the affairs of a company and not on designation or status.
Complainant must specifically disclose the role of accused/partner in order to fasten vicarious liability. When the cheque was not signed by the accused and there was no allegation that the accused was in control of the affairs of the firm or was responsible to it, then complaint was quashed.
Criminal liability has to be fastened with certainty and not on loose and laconic pleadings. In a complaint case, complainant must make it manifestly clear as to what is the gravity of the allegations against a particular accused. Unless law presumes, there cannot be any presumption that a person is guilty of an offence. In case of offence by a company, a presumption would arise that the offence has been committed with the active knowledge, consent or supervision of the Managing Director by virtue of the designation of his office namely, ‘Managing’. Law presumes that such person would be liable. But in the case of Directors, position is to the contrary. No such legal presumption arises. Vicarious liability has to be pleaded and proved.
However, a person in the commercial world having transactions with a company is entitled to presume that the directors of the company are in charge of the affairs of the company. If any restrictions on their powers are placed by the memorandum or articles of the company, it is for the directors to establish it at the trial. A person normally having business or commercial dealing with a company, would satisfy himself about its creditworthiness and reliability by looking at its promoters and Boards of Directors and the nature and extent of its business and its Memorandum or Article of Association. Other than that, he may not be aware of the arrangements within the company in regard to its management, daily routine etc. Therefore, when a cheque issued to him by the company is dishonoured, he is expected only to be aware generally of who are in charge of the affairs of the company. It is not reasonable to expect him to know whether the person who signed the cheque was instructed to do so or whether he has been deprived of his authority to do so when he actually signed the cheque. Those are matters peculiarly within the knowledge of the company and those in charge of it. So, all that a payee of a dishonoured cheque can be expected to allege is that the persons named in the complaint are in charge of its affairs.
The law, as it presently stands therefore, is that as long as there is an averment to the effect that the person sought to be made liable, apart from the company, is in charge of the affairs of the company or responsible to it for the conduct of its business, nothing more is required to be averred in the complaint. While examining the matter, Magistrate can take into consideration material on record besides the contents of the complaint. Composition of the firm or a company must be tested in the trial, if there are basic averments and allegations made in the complaint, regarding role or status of the accused. Where the plea taken is that the accused had ceased to be director, Form 32 is a statutory document evidencing change in status of directors of a company and such document is conclusive proof of the status of a director.
In case of partnership firm, vicarious liability is fastened only on those partners who at the time of the offence were in charge of and responsible to firm for conduct of its business. Complaint against partner only and not against the firm, on whose behalf cheque was issued, is valid. In case of a proprietary firm, vicarious liability cannot be invoked against any other person except the sole proprietor and only sole proprietor would be liable for dishonor of the cheque.
The complainant must comply with clause (b) of the proviso appended to Section 138 of the Act for maintaining a complaint against the drawer of the cheque. For this purpose, the notice for demand must be issued to the drawer of the cheque within 30 days of the receipt of information regarding dishonor of the cheque. The complaint must be filed within one month from the date of accrual of cause of action as per clause (c) of the proviso to Section 138 (which arises when accused failed to make payment of cheque amount despite service of notice of demand within 15 days). As per proviso to Section 142 (b) of the Act, 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 under such period. It implies that delay in filing the complaint can be condoned by the Court on showing sufficient and justified cause. What shall be the sufficient cause depends upon facts and circumstances of each case.
If the period of limitation expires on a day when there is a holiday of Court, then complaint can be filed on next working day. In computing time, the general rule is to exclude first day when cause of action arose and to include the last day.
There is a difference between taking of cognizance and issuance of process. The premature complaint filed before the accrual of cause of action need not be dismissed. If the complaint is found to be pre-mature before taking cognizance, it can await maturity or be returned to the complainant for filing it later. Even if Court has taken cognizance upon premature complaint and process has been issued against the accused, then complainant should not be allowed to suffer for the act and mistake of the Court.
The method to calculate the period of limitation for filing complaint has been discussed by the Supreme Court in the manner that the first day when cause of action has arisen is liable to be excluded.
Once the complaint is assigned to a Magistrate by Chief Metropolitan Magistrate or Additional Chief Metropolitan Magistrate, then the Magistrate is competent to deal with the same. The complaint cannot be returned on the ground that Magistrate has no jurisdiction over the area where any part of the cause of action has arisen. The Metropolitan Magistrate has jurisdiction over whole area of Delhi and only for administrative reasons particular jurisdictional area is assigned to him.
The Supreme Court in K. Bhaskaran’s case has dealt with the question of territorial jurisdiction and held that the offence under Section 138 of the Act has following five components: (1) Drawing of the cheque, (2) Presentation of the cheque to the bank, (3) Returning the cheque unpaid by the drawee bank, (4) Giving notice in writing to the drawer of the cheque demanding payment of the cheque amount, (5) Failure of the drawer to make payment within 15 days of the receipt of the notice. It may be possible that each of those five acts could be done at five different localities, so any one of the Courts exercising jurisdiction in one of the five local areas can become the place of trial for the offence under Section 138 of the Act. In other words, the complainant can choose any one of those Courts having jurisdiction over any one of the local areas within the territorial limits of which any one of those five acts was done.
Similar observation was given by the Supreme Court in Shamshaad Begum v. B. Mohd. Later on Supreme Court further examined the act of giving notice in writing to the drawer so as to determine the place, where the Court can have the territorial jurisdiction to try a complaint for offence under Section 138 of the Act, in the case of Harman Electronics Pvt. Ltd. and Anr. v. National Panasonic India Pvt. Ltd and held that issuance of the notice would not itself give rise to a cause of action but communication of the notice would give. Therefore, for constituting offence under Section 138 of the Act, the notice must be received in certain situations. The Court concluded that it would be the place of receipt of notice and not the place from where it is sent, where the local Court shall have territorial jurisdiction to try a complaint under Section 138 of the Act. In Harman Electronic’s case, Supreme Court further held a principle that the place where debtor seeks the creditor is not applicable to the criminal case so the place of residence of the complainant does not confer jurisdiction to the Courts of that area. Even Kerala High Court has held that place of residence of complainant where no part of transaction had taken place and if there was no agreement that the amount of cheque is payable at that place, then Court having jurisdiction of such place is not competent to entertain the complaint.
In Dashrath Rupsingh Rathod v. State of Maharastra , a three judge bench of Supreme Court decided that the return of the cheque by drawee bank alone constitutes commission of the offence.
Then came the statutory amendment as to jurisdiction in 2015. Now, the amended act provides that the jurisdiction will be where the payee bank is located or the place of the drawee bank where the cheque is presented for payment.
S.143 deals with summary trial. S. 144 deals with service of summons; Evidence on affidavits is dealt by section 145; evidentiary value of bank’s slips is dealt by S.146 and compounding of offences are dealt by S.147.
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.
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.
 Sheelam Raji Reddy v. Sanudrala Bixmaiah, (2003) 113 CompCas 517 (AP).
 RBI Notification No RBI/2011-12/251 DBOD.AML BC.No.47/14.01.001/2011-12 dtd. 4th Nov 2011.
 Kesavan Thankappan v. State of Kerela, 1999 Crl. LD 714 (Kar).
 Sadanandan Bhadran v. Madhvan Sunil Kumar, AIR 1998 SC 3043.
 Rama Bangia v. M/s Pushpa Builders, 1998 VI AD (Delhi) 304.
 Ishar Alloys Steels Ltd. v. Jayaswals Neco Ltd., AIR 2001 SC 1161.
AIR 1996 SC 2339; (1996) 2 SCC 739; 1996 JCC 155; JT 1996(1) SC 643.
 NEPC Micon Ltd. v. Magma Leasing Ltd., (1999)4 SCC 253; 1999IV AD (SC) 453; AIR 1999 SC 1952.
 Modi Cements Ltd. v. Kuchil Kumar Nandi, AIR 1998 SC 1507; (1998) 3 SCC 249; JT 1998 (2) SC 198; 1998 I AD (SC) Senbo Engineering Ltd. v. AhlconReady Mix Concrete Division of Ahluwalia Constract India Ltd. ILR (2009) IV Delhi 83.
 MMTC Ltd.v. Medehl Chemicals & Pharma (P) Ltd., AIR 2002 SC 182; 2002 Cr. LJ 1397 (SC).
 Vinod Tanna v. Zahir Siddiqui, JT 2001 (10) SC 345; 2002 (1) JCC 86 (SC).
 Deepa Finance Corporation v. A.K. Mohammad, 2001 Crl. LJ 3582 (Kan).
 T. Kalavathu v. Veera Exports, I (2002) BC 247 (Mad).
 Babula Nainmal Jain v. Khimji Ratanshi, (2001) 105 Comp case 849 (Bom).
 Investor Plaza v. Vijay Sachdeva and Ors., MANU/DE/3774/2010.
 Nityanand v. Jamuna Prasad, 2002 (1) KLJ 448 (Kar).
 D.K. Goel v. Dr. Kamal Sujit, 2001 Crl. LJ 39133 (Bom).
 Rajneesh Agarwal v. Amit J. Bhalla, AIR 2001 SC 518; 2001 I AD (SC) 44; 2001 (1) Crimes 104; M/s. Rahul Builders v. M/s. Arihant Fertilizers and Chemical 2008 Cr. L. J. 452.
 Srikant Somani & Ors. v. Sharad Gupta & anr., 119 (2005) DLJ 616.
 Suman Sethi v. Ajay Kumar Churiwal, AIR 2000 SC 828; 2000 (I) Crimes 201.
 Padmani Ploymers Ltd. v. Unit Trust of India, 2003 Crl. LJ 1053 (Del); 2003 I AD (Delhi) 88. Guru Swarup Srivastava v. National Agricultural Coop. Marketing Federation 147 (2008) DLT 130.
 Manivannan v. Everking Garments, (1994) 3 Crimes (Mad).
 Metion India Pvt. Ltd. v. M/s. Ester Industries Ltd., 2010 VIII AD (Delhi)174.
 Chandra Kanta v. Kapadia Exports, 1996 V AD (Delhi) 108.
 Inter Ocean Shipping v. Lt. Col. Y.R. Puri, 45 (1991) DLT 221.
 Rail IndiaTechnical & Economic Service v. I.M. Puri, 2000 III AD (Delhi) 645.
 Viji Airways Ltd. v. Aishu Finance Lrd., II (2002) BC 279 AP.
 Jagdish Singh v. Nathu Singh, AIR 1992 SC 1604.
 K. Bhaskaran v. Sankaran Vidhyan Balan, AIR 1999 SC 3762.
 V. Raja Kumari v. P. Subbarama Naidu, AIR 2005 SC 109; 2005 Crl LJ 127 (SC); 2004 X AD (SC) 433. Guru Swarup Srivastava v. National Agricultural Coop. Marketing Federation 147 (2008) DLT 130.
 Charanjit Singh v. P.C. Nanda & Sons, 90 (2001) DLT 19; 2001 II AD (Delhi).
 HDFC Bank Ltd. v.Amit Kr. Singh, 160 (2009) DLT 478.
 RRJ Dass v. Satya Bhamalal, 2002 VI AD (Delhi) 595; 2003 (1) Crimes 578.
 Santosh v. Gupta Brass Parts Co., 110 (2004) DLT 160.
 Sadanandam Bhadran v. Madhvan Sunil Kumar, AIR 1998 SC 3043.
 Lok Housing & Construction Ltd v. DCM Daewoo Motors Ltd., 2002 VI AD (Delhi) 892; (2002) 4 Crimes 267.
Kumar Gupta v. P.K. Jain, 2003 Crl. L.J. 122 (Delhi).
Comp Case 245 (Mad); The Jammu and Kashmir Bank v. Abhishek Mittal, MANU/DE/2450/2011.
 Devendra Kumar Rai v. Ram Gopal Rai, 1999 Crl. LJ 1349 (All); 1999 JCC (All) 1.
 K. S. Bakshi & Anr. v. State, Manu/DE/8744/2007.
 Signaps and Anr. v. Bumpy Udyog, 149 (2008) DLT 185.
 I.C.D.S. Ltd. v. Beemna Shabeer, 2002 CrLJ 3935.
 B. Mohan Krishna v. Union of India, (1996) 86 Comp Cas 487 (AP) (DB); Nutech Organic Chemicals Ltd. v. GMR Technologies & Industries Ltd., 2003 Crl. LJ 1462 (AP).
 K. N. Beena v. Munniyappan, AIR 2001 SC 2895; Hiten P. Dalal v. Bratindranath Benerjee, AIR 2001 SC 3897; 2001 V AD (SC) 260; 2001 (3) Crimes 220 (SC).
 Goa Plast (P) Ltd. v. Chico Ursula D’Souza, (2004) 2 SCC 235.
 Krishna Janardhan Bhat v. Dattatraya G. Hegde, AIR 2008 SC 1325.
 M/s. Kumar Exports v. M/s. Sharma Carpets, 2009 (1) R.Cr. R. (Crl) 478.
 A.V. Murthy v. B. S. Bagabasavanna, AIR 2002 SC 985; Ramakrishnan v. Parthasarthy, III (2003) DC241 (Ker.).
 1997 (1) ALT (Crl) 509.
 Anil Hada v. Indian Acrylic Ltd., AIR 2000 SC 145; 2001 (1) Crimes 26 (SC); 2000 Crl. LJ 375 (SC).
 FMI Investment Pvt. Ltd. v. State, 2000 (2) Crimes 435 (Delhi); 1949 VI AD (Delhi) 469; Also see Harshendra Kumar D. v. Rebatilata Koley Etc., AIR 2011 SC 1090.
 Kusum Ingots and Alloys Ltd v. Pennar Peterson Securities Ltd., AIR 2000 SC 954.
Marketing Ltd. 2008 (101)DRJ 366.
 Raminder Kaur Narula v. Prem Colour Chemicals (P) Ltd. ILR (2005) II Delhi 194. See also Rachna Kapoor v. State 2005 (3) Chandigarh Criminal Cases (HC) 236=121 (2005) DLT 431=2006 Crl. L. J. (NOC) 70, where the proceedings were quashed against accused who was simply described as a director of the company and bald averments were made against her that she was responsible for conduct of the business of the company without specifying how she was responsible for the affairs of the company and on what basis allegations are leveled against her. No single act relating to transaction was attributed to her.
 Everest Advertising Pvt. Ltd. v. State 2007 Crl. L. J. 2442, 2007 IV AD (SC) 499-2007 (2) JCC (NI) 141, AIR 2007 SC 1650, 2007 (2) RCR (Crl.) 575. See also Ramaswamy Athappan & Anr. v. Bharti Infotel Ltd. 148 (2008) DLT 79.
 Cdr. Shekhar Singh v. N. K. Wahi, 2002 VI AD (Delhi) 1021. The above decision of Delhi High Court was confirmed by Supreme Court in N.K.Wahi v. Shekhar Singh, 2007 IV AD (SC) 254; AIR 2007 (2) SC 1454 and it was held that mere averment that directors are responsible for carrying out the business of the company and their liability is joint and several, itself is not sufficient as there must be specific allegation against them in the complaint as to the part played by them in the transaction. There must be clear and unambiguous allegations as to how the directors are incharge and responsible for the conduct of the business of the company.
 Saroj Kumar Poddar v. State (NCT of Delhi), 2007 Crl. L. J. 1419; AIR 2007SC 912. Supreme Court subsequently while dealing with the case titled as S.M.S. Pharmaceuticals v. Neeta Bhalla, 2007 III AD (SC) 157, held that a plain reading of the Saroj Kumar Poddar’s judgment would show that no such general law was laid down therein. The observations were made in the context of the said case as it was dealing with a contention that although no direct averment was made as against the appellant of the said case fulfilling the requirements of Section 141 of the Act but there were other averments which would show that the appellant therein was liable therefore.
 Major L.K. Toshkhani v. Ravi Kumar, 2007 Crl. L. J. (NOC) 232; 2007 II AD (Delhi) 392, A. G. Gaggar v. State 2007 (1) JCC (NI) 91, Ashok Newatia v. State, 2007 (2) JCC (NI) 202, Dev Saran v. M/s D. C. M. Financial Ltd., 2007 (3) JCC (NI) 267.
 Sarla Jain v. Central Bank of India, 2007 IX AD (Delhi) 647; 2007 (4) JCC (NI) 313.
 N. Rangachari v. Bharat Sanchar Nigam Ltd., 2007 Crl. L.J. 2448; AIR 2007 SC 1682.
 K. P. G. Nair v. State, 2008 V AD (Delhi) 195; O. P. Aggarwal v. State, 2009 DRJ (108) 494. Also see P. N. Shrinivasan and Ors.v. VLS Finance Ltd., II (2008) DLT (Crl) 754 and K. N. Shamshuddin v. State, MANU/DE/0390/2009, where minimum averments were absent and proceedings were quashed.
 J.N. Bhatia v. State, 2007 III AD (Delhi) 142; 2007 (2) JCC (NI) 171.
 Rallis India Ltd. v. Poduru Vidya Bhusan and Ors., JT 2011 (4) SC 247.
 Dinesh Mohindra v. DCM Financial Services Ltd. and Ors., 2009 (157) DLT 547; Vinay Kumar @ Vinay Kumar Kedia v. State (NCT of Delhi) and Anr., MANU/DE/3731/2010.
 Ketanbhai Shah v. State of Gujarat, AIR 2004 SC 4274.
 R. Rajgopal v. S. S. Venkat, AIR2001SC2432.
 Bhupinder Singh Bhogal v. G.E. Capital Transportation Financial Services Limited, MANU/DE/3836/2010.
 Becon Industries v. Anupam Ghosh, I (2002) BC 484 (Kar); Abdul Gaffar v Abdnrabiman, 1999 (4) Crimes 1998.
 M/s. Shankar Finance & Investments v. State of Andhra Pradesh, (SC) 2008(3) R.C.R.(Criminal) 885.
Payment of the amount due on the instrument to the holder would result in the discharge of the parties to the instrument. Section 10 defines payment in due course. Payment (in due course) by the makes, drawer or acceptor would result in the discharge of the instrument.
(Section 10) PDC means payment in accordance with the apparent tenor of the instrument in good faith and without negligee to any person in possession under circumstances which do not afford a reasonable ground for believing that he is not entitled to receive payment.
It mainly covers discharge by an agreement between the parties, and includes waiver, release, accord and satisfaction.
If the holder of the bill allows the drawee more than 48 hours, exclusive of public holidays to consider whether he will accept the same, all previous parties not consenting to such allowance are thereby discharged from liability to such holder.
If the Holder of a bill o exchange, who presents the same for acceptance, acquiesces in a qualified acceptance of the bill, all previous parties whose consent is not obtained to such an acceptance are discharged as against the holder and those claiming under him, unless on notice gives by the holder they assert to such acceptance. The acceptance of a bill is deemed to be qualified, for example, when the acceptance is conditional, dealing the payment to be dependent or the happening of an event therein stated, or when the acceptor accepts to pay at a specified place only and not elsewhere.
If a Holder does not present a cheque within a reasonable the after its issue, and the bale fails and the drawer suffers actual damage through the delay, he is discharged from liability to the extent of the damage he has suffered and no more.
(Section 87) Any material alteration of NI renders the some void as against anyone who is a party thereto at the time of making such alteration and does not son sent thereto, unless it was node in order to carry out the common intention of the original parties.
By material alternation the identity of original instrument is destroyed and those parties who had agreed to be liable on the original instrument can’t be made liable on the new contract contained in the altered instrument to which they never consented.
A material alteration is one which varies the right, Liabilities or legal position of the parties on ascertained by the original instrument.
Alternation with the assent of the parties.
The alteration should be apparent on the face of the instrument otherwise it remains a valid security in the hands of a HDC. Where an instrument has been materially altered but doesn’t appear to have been so altered, the party paying it will be discharge by payment in due course.
Special crossing can only be made in the name of one banker.
(Sec 127) Where a cheque is crossed especially to more than one bankers, the banker on whom it is drown shall refuse payment thereof except where the banker to whom it is crossed may cross it specially to another banker, or his agent for collection.
The object of adding these words in the crossing is give protection to payee Even if such a cheque is lost nobody else can get the payment of the some. The colleting bank is supposed to collect such cheque only on the behalf of the payee if it collects on the behalf of some other person it can be held responsible for the some.
The duty of the collection banker.
The bank which reclines the payment of a crossed cheque on behalf to its entomic is known so the collecting banker.
A banker who has in good faith and without negligence ceecined payment for a customer of a cheque crossed generally or apically to himself shall not in, case the title to the cheque pores defective, icier any liability to the time owner of the cheque by reason only of having received such payment.
That the collecting bank must have acted in good faith and without negligence. If there a circumstances which can arouse a suspicion in the must of bank regarding the rights of a person who wants to get the cheque collected the bank is supposed to make proper inquiries before collecting the cheque. If the bank fails to make any such inquiry he is not acting in good faith.

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