Dishonour of Cheque and its impact during COVID-19 lockdown
The current global situation as a result of COVID-19 pandemic has left everyone in a condition that no one could have imagined. Even though there has been various attempts made by both the Government and Judiciary to come to the rescue of its citizens, however, there is an increase in the number of cheque bounce cases and worried citizens are trying to get advise on how to deal with the situation. Most businesses survive on monthly income/ sales and therefore, do not have a kitty set aside for such emergencies. Thus, non-maintenance of balance into Company’s current account and cheques bouncing, has caused anxiety among the small and medium sized business owners and entrepreneurs. Although the Government is looking at the option of decriminalizing Section 138 of Negotiable Instruments Act, 1881, yet this will take a long time before it sees the light of the day.
The Hon’ble Supreme Court on 6th May 2020, did extend the limitation under Sec. 138 Negotiable Instruments Act, 1881 i.e. the time period within which the complainant has to act in order to ascertain his right. This means that once there is a dishonour of cheque, the complainant has to send a legal notice within 30 days from date on which he/ she were intimated about the dishonour of cheque. Once the notice is issued, a 15 days’ time is given to discharge liability immediately before the expiry of 15 days. In the event such payment is not made, then the complainant is required to file a case within 30 days from such date.
‘Cheque’ as a Negotiable Instrument has been defined under Section 6 of Negotiable Instruments Act. In legal terminology, the author of the cheque is ‘drawer’ while the person in whose favour the cheque is drawn is ‘payee’ while the bank who is directed to pay the amount is ‘drawee’. When a cheque is dishonoured, the drawee bank issues ‘Cheque Return Memo’ to the banker of the payee clarifying the reason for non-payment. The payee can then sue the drawer of the cheque for default in paying any liability. It is important to note that a 138 proceeding will lie only for legally enforceable dues and cheques for ‘gift’ purpose, the drawer cannot be prosecuted.
A proceeding under Sec. 138 can be initiated in the event that there is ‘insufficient funds’ in the drawer’s account. Upon receiving the complaint and relevant documents and affidavits, the court then summons the drawer and hears the matter. In the event that the drawer is found guilty, then he has to pay twice the amount to the payee, or imprisonment for a term of two years or both.
Supreme Court has time and again said that Sec. 138 of NI Act as a civil wrong. It should be dealt as summary trial and that the punitive aspect of it should be avoided[1]. If the Court is satisfied that the cheque amount assessed is paid along with interest, then the Court can close the proceedings and discharge of the accused can take place upon satisfaction. In an offence under Section 138 of NI Act, mens rea is not essential[2], such a measure is resorted to in public interest and such laws of strict liability are justified and cannot be said to be unreasonable.
The principle of territorial jurisdiction laid in Bhaskaran v. Sankaran Vaidhyan Balan[3] was overruled in Dashrath Rupsingh Rathod v. State of Maharasthra[4]wherein it was clarified that only those courts within territorial limits of drawee bank would have jurisdiction to try the case. This resulted in the inability of the complainant to file multiple cases in different jurisdiction, with a view to harass the accused. Since as a result of Bhaskaran judgment, there was flexibility which was given to the drawee to choose a place to initiate 138 NI proceedings, this practice was done away with and now the drawer did not have to face hardships with actions being initiated in far-flung areas.
Again we see that a fair bit of emphasis is laid on mediation as a mechanism to reach a settlement. Considering that many MSMEs could not have maintained account balance to make payments, a mediation or pre-litigation mediation proceeding would help in reaching a settlement. There are numerous instances when the parties who are willing to close the matter, can refer their matter to lok adalat and look at a settlement for the same.
[1] Meters & Instruments (P) Ltd. V. Kanchan Mehta (2018) 1 SCC 560
[2] Mayuri Pulse Mills vs Union of India (1994) 96 BOMLR 953
[3] (1999) 7 SCC 510
[4] (2014) 9 SCC 129
She is Managing Partner of Pratap & Co. - a litigating law firm. She is an Advocate-on-Record in Supreme Court and practices in High Court and various Tribunals including NCLT, NCLAT, NCDRC, NGT, DRT.
Qualified MBA in Finance from La Trobe University, Melbourne, Australia and LL.B from Lucknow University, she brings with her more than a decade of experience in legal affairs .