Suppose I live at Kolkata. I went Delhi to buy a car. Car owner who lives at Delhi and who has a shop at Delhi delivered the car to me on trusting the payment made by me by cheque. It is obvious that since I am having account at Kolkata i.e. at my place of residence, cheque is drawn on Kolkata bank.
At a later date cheque is presented by seller of car at Delhi in his bank for clearance and unfortunately cheque bounces on the ground that drawer of the cheque (in this case me) do not have sufficient balance.
It means seller of the car is cheated by a person of Kolkata i.e. by me. Cause of action arises at Delhi. It is seller at Delhi who favoured me. And since he has sold the car he wants payment at Delhi itself. He will therefore like to file a case in court at Delhi only. Delhi is a place of payee and not that of drawer of the cheque.
Supreme Court has given the ruling that the jurisdiction of such cheque bounce case have to be the location where the cheque bounced, meaning the bank of the person who issued the cheque i.e. drawer of the cheque. Apex court has ruled that case cannot be filed at the location of complainant. In the case given by me drawer of the cheque is at Kolkata and hence complainant who lives at Delhi has to file the case at Kolkata.
As such if the drawer of the cheque and the payee both lives at one location, there is no problem, complainant will not face any difficulty in recovery of dues from defaulter, i.e. drawer of the cheque.
But if when buyer and seller live at two different places, real problem of jurisdiction arises.
If 100 people like me go to Delhi from different corners of the country and buy car by giving payment through cheque and seller deliver the cars to all trusting cheques and then these cheques are returned unpaid by drawee bank, payee, the seller will have to file court case in different parts of the country from where buyer had come to Delhi to buy car.
I would like to give here another example of Saree dealer in Surat, where variety of sarees are manufactured and sold all over the country .Retailers from different part of the country go to Surat to buy Saree at cheaper rate and then handover signed cheque to seller to create confidence and trust in seller. It also happens that salesmen of saree dealer moves from one town to other town to market saree and collects orders of various amounts from different retailers in different towns and cities.
In return, retailers/ buyers handover current dated or postdated cheques to the party as a token of payment. In such case if buyer i.e. the drawer of the cheques returns the cheque unpaid when presented for payment, seller will have only legal recourse to recover the money from such cheat retailer. In past, such sellers used to file case in Surat itself. But now in view of Supreme Court order, they will have to file cases in different towns where the retailer failed to honour the cheque.
The clear message is that now onwards all dealers and all sellers will insist for local cheques in lieu of goods sold or to be sold or they will prefer cheques drawn on local banks only i.e. Draft if it comes from location away from that of seller’s location. It means that the trust on cheque is diluted by Supreme Court order mentioned above. Latest order of apex court is nothing but direct attack on reliability and trust of cheque which was created during last five to ten years after introduction of advance technology in almost all banks.
I do not mean to say that court order is right or wrong, what I mean to stress that it has caused erosion in value and respectability of cheque. In foreign countries, cheques issued in payment is treated as good as cash payment.
Hence I am of strong opinion that cheques should be so much reliable and trustworthy that people treat it as cash. If it happens so, it will help in reduction of cash transaction to a great extent and also have positive impact on the economy. Rather GOI should make it mandatory for all citizens to make payment only by account payee cheques and drafts if the payment is of value more than Rs.5000o. Such rule will help is reduction of cases of tax evasion and increase tax compliance to a great extent. GOI can multiply revenue income many times only by restricting cash payment system.
Here it will be proper to mention that after adoption of Core Banking Solution (CBS) by almost all banks, cheques issued and drawn by a person or a commercial entity is normally Multi-city cheques. Or you can say majority of cheques issued now-a-days are payable all over the country. The system of sending of outstation cheque to the location of drawer and waiting for 10 to 15 days for payment is no more needed. In most of the cases cheques issued from anywhere in the country are cleared in the location where bank of payee is situated.
A few years ago, when Court and GOI made the law related to cheque bounce case stringent, drawer of cheque became alert in fear of punishment. Reliability of cheques moved to greater height first in fear of legal action and secondly due to its encashability anywhere in the country.
But now after the said ruling of Supreme Court, people will not like to accept outstation cheque as payment for goods sold or services extended or to be extended. . Because if the cheque is returned unpaid in want of adequate fund, he or she will have to bear with loss or spend time, manpower and money in filing a case in the location of issuer of cheque.
The fact is that real guilty is issuer of cheque who issued the cheque and then did not keep adequate balance to ensure honoring of cheque. It is issuer and drawer of cheque who cheated the seller of goods and services by issuing false cheque. But unfortunately the Apex court instead of punishing the real guilty thought it better to force payee to go through difficult course of action of filing and contesting the case till its logical end. There may be some good logic and good reason in the minds of learned Judge before signing such orders. However GOI or RBI should look into the matter and ponder over the consequences of the said order in the larger interest of the country. It is necessary to point out there that issuer of cheque can manage at his location required papers and attend court in time if payee files a case against him in local court. But the payee will have to manage person, money, time, and ticket for journey and lastly severe harassment in attending hundreds of dates at remote location. Obviously to avoid such awkward situation majority of sellers will avoid accepting outstation cheques or deliver the goods only after the cheques is paid into his account.
Obviously the consequence of latest order given by Supreme court, value and usage of cheques will be limited and confined to local areas i,e, within the area of jurisdiction of local court. It will reduce the importance of multi-city cheques so far its acceptability is concerned. Perhaps Supreme Court desires that buyer of cheque uses it only in the location where he lives.
Last but not the least, in view of increasing number of cheque bounce case in courts, either court or GOI should make arrangement for disposal of such cases in time bound programme of say 15 days. In recent past Court issued guideline for quick disposal of causes related to cheque bounce cases. If GOI frames adequate rule in unison with spirit of court order, it will be a great help to people who have been cheated by fraud-minded drawers of cheques.
Cheque bouncing: Supreme Court's verdict on jurisdiction
Clearing all controversy, the Supreme Court ruled that the jurisdiction of such cases have to be the location where the cheque bounced, meaning the bank of the person, who issued the cheque and not the bank location of the complainant
Prosecuting jurisdiction in a cheque bouncing case has been a highly contested issue since very long. The issue has revolved around the point of determination.
Where would someone file a case for cheque bouncing out of the following venues?
• Location of the bank of Complainant • Location of bank of issuer • Location of origin of legal notice • Where the legal notice was received
In the Dasrath Rupsingh case, a three Judge Bench of the Supreme Court has finally laid the controversy to rest.
By and large, complaints pertaining to cheque bouncing are instituted where the bank of the complainant is. Before the Supreme Court decided the case of Harman Electronics, complainants used to file a large number of cases on the basis of the location of their attorney, not of any bank, who would send the legal notice for a cheque having bounced.
The Court noted that the law of cheque bouncing was being misused rampantly. Complaints were filed in Delhi just because lawyers were issuing notices from there, even though the bank of the payer or the payee were outside Delhi.
The Supreme Court has effectively put an end to this harassment at the hands of the Drawee. Last year, in the Nishant Aggarwal case, the Supreme Court again addressed the prosecuting jurisdiction aspect. A two Judges Bench of the Supreme Court held that the complaint under Section 138 can be filed at the jurisdiction where the bank of the Complainant is situated.
In the Dasrath Rupsingh case, the apex court has cleared the controversy once and for all. The Bench stated that the factor for determining jurisdiction has to be the location where the cheque bounced, meaning thereby, the bank of the person who issued the cheque and not at the place the intimation of dishonour reaches, i.e, bank of the complainant.
The Bench further held that the offence under the section shall occur when the cheque is returned unpaid. The Bench notes that the cheque bouncing law should not be allowed to become a tool for harassment. There had been cases where the complainant would deposit the cheque and/or issue a legal notice from a place that was totally unrelated to the transaction in question-- in a possibe attempt to harass the other party.
The Bench also safeguarded the interests of genuine creditors in such a scenario. A person/ company can insist that the payment shall be made through cheque in question, payable at a particular location convenient to the creditor.
It is also important to note that the remedy under the Negotiable Instruments Act is in addition to the provisions of the Indian Penal Code (IPC) and not as an alternative. Meaning that the case for cheque bouncing will be maintainable only where the bank of the drawee is, but if the creditor can demonstrate that various acts of the transaction took place in another jurisdiction, like his office/ residence, then he can maintain a separate action for fraud, cheating and forgery.
Then there is also an option before the Complainant to institute a civil suit for recovery against the person who issued the dishonoured cheque. Status of the pending cases: After ruling that the proper jurisdiction to hold trial in a cheque bouncing case is where the bank of the alleged accused is situated, the Bench passed an order dealing with the currently pending cases.
In all those matters where the alleged accused has appeared after summoning and his evidence under Section 145 has commenced, those cases will remain where they are already pending. In all other matters where the evidence by examination under Section 145 has not begun, the case will be returned to the complainant to institute at the jurisdiction where the bank of the accused is situated.
Reading any judgement by Justice Vikramajit Sen is an excellent experience and this one is no different. However, in a separate judgement, Justice TS Thakur has also given elaborate findings regarding the confusionaround cheque bouncing matters.
When offence of dishonour of cheque is not made even though accused has given stop payment instruction?
Stop payment instructions whether are covered by Section 138 of the Negotiable Instruments Act, 1881 (NI Act) or not, was the subject matter of controversy before the Court.
High Court in its impugned finding had held that provisions of Section 138 of the NI Act are attracted where a cheque is returned by the bank on the ground that there is insufficient amount or that the amount of cheque exceeds the amount arranged to be paid from that account by an agreement made with the bank.
It was further held that the cheque in question was returned on account of "stop payment" instructions given by the accused in view of the fact that the complainant had failed to discharge its obligations as per the agreement executed between them. The High Court had further observed that the complainant had not disclosed complete facts as required under provisos (b) and (c) of Section 138 of the NI Act and accordingly had quashed the complaint.
The Court held that the impugned finding of the High Court was incorrect as even "stop payment" instructions issued to the bank are held to make a person liable for offence punishable under Section 138 of the NI Act in case cheque is dishonoured on that count. Once the cheque is issued by the drawer a presumption under Section 139 of the NI Act must follow and merely because the drawer issues a notice to the drawee or to the bank for stoppage of the payment it will not preclude an action under Section 138 of the NI Act by the drawee or the holder of the cheques in due course.
The Supreme Court relied upon its previous judgement in the matter of MMTC Limited Vs Medchl Chemicals and held even when the cheque is dishonoured by reason of stop-payment instructions by virtue of Section 139 the court has to presume that the cheque was received by the holder for the discharge, in whole or in part, of any debt or liability. of course this is a rebuttable presumption. The accused can thus show that the "stop-payment" instructions were not issued because of insufficiency or paucity of funds. If the accused shows that in his account there were sufficient funds to clear the amount of the cheque at the time of presentation of the cheque for encashment at the drawer bank and that the stop-payment notice had been issued because of other valid causes including that there was no existing debt or liability at the time of presentation of cheque for encashment, then offence Under Section 138 would not be made out.
The important thing is that the burden of so proving would be on the accused. Thus a court cannot quash a complaint on this ground. Whether complainant had failed to discharge its obligations or not could not have been decided by the High Court conclusively at the stage when it was dealing with a petition filed under Section 482 of the Code for quashing the complaint. Whether any money is paid by the accused to the complainant is a matter of evidence. The accused has ample opportunity to lead his defence.
When cheques bounce-Hindu Business LIne
Cheque bouncing is one of the most common offences in the country, with over 40 lakh pending cases in the Supreme Court. A cheque can bounce for several reasons such as insufficiency of funds, mismatch in signature, stale cheques, post-dated cheques or if there are corrections in the cheque without authentication. The bank collects a penalty from the defaulter when a cheque bounces. The person issuing the cheque can even get a jail term.
All that’s fine, but what are the remedies if you’ve been issued a cheque which has bounced?
Legal action
Almost every bank gives a ‘cheque return memo’ along with the returned cheque stating the reason for the bounce. If you hold the cheque, you need to inform the drawer and ask if you can re-present it to the bank within the 3-month period.
If cheque is dishonoured even the second time, then you can take legal action. As a first step, you can send a legal notice to the defaulter within a period of 30 days from receiving the cheque return memo. The notice should contain all necessary details.
The defaulter needs to make a fresh payment within a period of 15 days from the receipt of this notice. If he still doesn’t make the payment within this time period, then you can file a complaint in the magistrate court. This case should be filed within a maximum period of 1 month from the date of expiry of the 15-day period.
Remember that the complaint should be filed within the time frame. If complaints are made outside the time frame, then the case becomes time barred and will not be entertained. When your case comes for hearing, the defaulter can be punished with a jail term for two years and/or a penalty which can be up to twice the cheque amount. The defaulter can appeal against the order within a period of 1 month of judgement.
However, it may not be so straightforward all the time. Here are two common instances when cheques bounce and what can be done.
Rent cheques
Sometimes, it may so happen that the tenant does not have the funds simply because the landlord did not drop the cheque at the expected time. Therefore, the landlord is bound to first inform the tenant and only then proceed with the legal process. There may be another case when the tenant wishes to set off an amount from a particular month’s rent towards some expense he incurred on behalf of the landlord, which the latter refuses to pay. If there is a cheque bounce because of this, the criminal case will continue against the tenant till he is able to establish that there was a legitimate set-off.
EMI cheques
Banks don’t normally file cases against bounced EMI cheques as the first step. Hefty penalties, loan default charges and cheque bounce charges are levied first. These keep building up for every month of default and added to the EMI amount. Also, the defaulter’s credit rating gets affected with every default he makes. In case of secured loans, banks also have the security as collateral. If the borrower does not make payments even after repeated reminders, the bank can give sufficient notice and auction the security to recover the dues.
http://www.
To fast-track cheque-bounce cases, SC issues guideline
Written by Utkarsh Anand | New Delhi | April 26, 2014 1:51 am
With more than 40 lakh cheque-bounce cases choking the justice delivery system in the country, the Supreme Court has issued slew of guidelines, including issuance of summons through e-mails and completion of evidence within three months, to prevent further piling up.
A bench of Justices K S Radhakrishnan and Vikramjit Sen laid down guidelines to be uniformly followed by all magisterial courts dealing with cheque-bounce cases under pertinent provisions of the Negotiable Instruments Act for a "speedy and expeditious disposal".
Directing for a day-to-day trial, the court said that a magistrate shall issue summons on the same day he receives a complaint, provided documents are in order. It held that a magistrate need not call a complainant twice for recording his statement, once at pre-summoning stage and another after issuance of summons, and taking an appropriate affidavit from him should suffice.
The summons should be issued immediately by post as well through e-mails. The court said that summons should apprise an accused that he could show up in the court and compound the offence on the same day.
"Once the court issues summons and the presence of the accused is secured, an option be given to the accused whether, at that stage, he would be willing to pay the amount due along with reasonable interest and if the accused is not willing to pay, court may fix up the case at an early date and ensure day-to-day trial," it said.
At the stage of recording of evidence, the bench said, the court concerned must ensure that examination-in-chief, cross-examination and re-examination of the complainant is conducted within three months of assigning the case. "The court has option of accepting affidavits of the witnesses, instead of examining them in court," it added.
The order came on a petition by the Indian Banks Association, which is the representative body of banks in India with over 174 banks and financial institutions as its members. Its counsel Lalit Bhasin had asserted the need to have uniform practice across courts in the country to ensure cases do not drag in courts on account of unnecessary and unwarranted procedural delays.
What the court says
* No need for complainant to record his statements in court more than once; affidavit can be filed.
* Summons to be issued to the accused on the same day the magistrate receives the complaint.
* Summons to be issued also through e-mails, besides normal post.
* Accused can offer a settlement the day he shows up in court and the magistrate shall dispose of the case.
* All evidence to be recorded within three months and verdict to be delivered shortly.
* Magistrate can receive affidavits from the witnesses too, dispensing their personal presence.
http://indianexpress.com/
SC: No overkill in cheque bounce cases
Once the amount in a dishonoured cheque is paid with interest and compensation, the payee cannot insist on criminal prosecution of the directors of a firm who issued the cheque. The object of Section 138 of the Negotiable Instruments Act, which makes issuing of cheques without sufficient balance in the account an offence, is meant to "inculcate faith in the efficacy of banking operations and credibility of transactions. It is not meant only to punish the guilty," the Supreme Court has stated in the judgment, Lafarge Aggregates & Concrete India Ltd vs Sukarsh Azad.
In this case, directors of a construction company issued a cheque to Lafarge, but it was dishonoured by the bank leading to a criminal complaint before the magistrate. The directors moved the high court and offered to pay the amount with interest. The high court, therefore, quashed the complaint. Lafarge was not satisfied with that and appealed to the Supreme Court for prosecution of the directors.
The court dismissed the appeal observing that the directors were willing to pay double the amount. It stated that Lafarge did not appear before the high court without sufficient reason, leading to an ex parte order quashing the complaint. Moreover, it approached the Supreme Court after a long lapse of time. Under these circumstances, "if the amount offered including interest and compensation was not acceptable to Lafarge, it is their choice," the judgment said, "but that would not allow them to prosecute the directors in pursuance of the complaint."
Dishonour of post dated cheques may not be an offence!
Dishonour of any post dated cheque issued as an advance payment by any purchaser cannot be considered in discharge of legally enforceable debt or any other liability and thus would not amount to an offence, the Supreme Court has ruled In the world of lending, banks/ financial institutions insisting on taking post-dated cheques (PDCs) from borrowers as a security has been a common norm. These PDCs have been astras (weapons) in the hands of the financial institution used for arm-twisting the borrowers and also acting as a deterrent to ensure that borrowers do not default. Wherever the borrower would explicitly or implicitly give indications of not having the ability to pay, the lender would present these PDCs to the bank; and once these PDCs bounce, the legal team of the lender would jump to action to initiate a case against the borrower under section 138 of the Negotiable Instruments Act, 1881 (NI Act). It is one of the most common legal actions being undertaken by lenders against borrowers and as we are all aware section 138 of the NI Act is the most dreaded section with regard to dishonour of cheque, which could lead you to some months of imprisonment to the drawer of the cheque. The text of the section is mentioned below for your ready reference: Dishonour of cheque for insufficiency, etc., of funds in the account
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 provision of this Act, be punished with imprisonment for a term which may extend to one year, 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- (138.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; (138.b) the payee or the holder in due course. of the cheque as the case may be, makes a demand for the payment of the said amount of money by giving a notice, in writing, to the drawer of the cheque, within fifteen days of the receipt of information by him from the bank regarding the return of the cheque as unpaid; and (138.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. (emphasis ours at relevant places) So there are two things. which are most critical to fall under the section apart from the basic conditions as stated in the section above. One, that the PDC needs to be a cheque at the time of presentation and second the cheque should be for discharging debt or liability, which is a legally enforceable debt or liability. That is to say, to institute a suit under Section 138 of the Act, there should be a legally enforceable debt or other liability subsisting on the date of drawal of the cheque. The matter whether PDCs are cheque at the time of presentation to the bank has been a contentious issue for long now. In a Supreme Court ruling of Anil Sawhney vs Gulshan Rai, the Court held that a post dated cheque is composed of two elements. At the time the post- dated cheque is drawn, it is in the nature of a bill of exchange and they assume the character of a cheque from the date appearing on the cheque. The extract of the ruling explains the fact: A "Bill of Exchange" is a negotiable instrument in writing containing an instruction to a third party to pay a stated sum of money at a designated future date or on demand. A "cheque" on the other hand is a bill of exchange drawn on a bank by the holder of an account payable on demand. Thus a "cheque" under Section 6 of the Act is also a bill of exchange but it is drawn on a banker and is payable on demand. It is thus obvious that a bill of exchange even through drawn on a banker, if it is not payable on demand, it is not a cheque. A "post- dated cheque" is only a bill of exchange when it is written or drawn, it becomes a "cheque" when it is payable on demand. The post-dated cheque is not payable till the date which is shown on the face of the said document. It will only become cheque on the date shown on it and prior to that it remains a bill of exchange under Section 5 of the Act. As a bill of exchange a post-dated cheque remains negotiable but it will not become a "cheque" till the date when it becomes "payable on demand The Apex Court further stated that
“An offence to be made out under the substantive provisions of Section 138 of the Act it is mandatory that the cheque is 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.... When a post-dated cheque is written or drawn it is only a bill of exchange and as such the provisions of Section 138(a) are not applicable to the said instrument. One of the main ingredients of the offence under Section 138 of the Act is the return of the cheque by the bank unpaid….A post-dated cheque cannot be presented before the bank and as such the question of its return would not arise. It is only when the post-dated cheque becomes a "cheque", with effect from the date shown on the face of the said cheque, the provisions of Section 138 come into play.” The ruling above made the fact clear that if a PDC was withdrawn or cancelled before the date on which it was to be presented to the bank then such cancellation of PDC would tantamount to cancellation of a Bill of exchange and not of a cheque per se. The recent ruling of the Supreme Court in the matter of Indus Airways Pvt Ltd & Ors. vs Magnum Aviation Pvt Ltd& Anr. brought out clarity on conditions for attracting 138 action clearly stating that dishonour of any post dated cheque issued as an advance payment by any purchaser cannot be considered in discharge of legally enforceable debt or any other liability and thus would not amount to an offence under Section 138 of the Negotiable Instruments Act, 1881.
Fact of the Case:
Indus Airways Pvt Ltd & Ors. (hereinafter referred to as the ‘purchaser’) placed two purchase orders on 19 February 2007 and 26 February 2007 with Magnum Aviation Pvt Ltd (hereinafter referred to as the ‘supplier’) for supply of certain aircraft parts. Two post dated cheques were issued by the purchaser in this regard. The date on the face of such two post dated cheques been 15 March 2007 and 20 March 2007. It is important to note that such post dated cheques were issued as an advance payment to the supplier as the terms of the contract stated to facilitate the supplier procure the parts from abroad. Subsequently on presentation of these cheques to the bank, they were dishonoured on the ground that the purchaser had stopped payment for the same. A cancellation letter was received by the supplier on 22 March 2007 cancelling the order and requesting the return of the cheques.
Judgement:
The Supreme Court quashed several conflicting views of the subordinate courts on the captioned subject. The important crux in this case as highlighted in the judgement was that one of the conditions of the contract entered into between the parties contended that the purchaser needed to make an advance payment to the supplier to enable him to purchase the aircraft parts from abroad. The fact that purchaser cancelled the purchase order and that the purchase order was not carried to its logical conclusion clearly meant that the cheque did not represent a debt or liability. The Apex Court placed reliance on the ruling in the matter of Swastik Coaters Pvt Ltd vs Deepak Brothers and others (1997 Cri LJ 1942 (AP)), whereby the Andhra Pradesh High Court held that
“……..Explanation to Section 138 of the Negotiable Instruments Act clearly makes it clear that the cheque shall be relateable to an enforceable liability or debt and as on the date of the issuing of the cheque there was no existing liability in the sense that the title in the property had not passed on to the accused since the goods were not delivered. ……..”
The ruling will have a far reaching consequence as there are thousands of cheque bouncing cases pending in the country.
Typically in non-recourse factoring transactions since the factors have exposure on the obligors, factors commonly use section 138 route as a recovery tactic. Particularly so, the ruling may come as a respite to several borrowers/ obligors in factoring cases these days, where the factors use PDCs as a means to arm-twist the obligors and initiate section 138 action against them disregarding the fact that the debt may not be a valid and enforceable debt at all.
(Nidhi Bothra is executive vice president, while Debolina Banerjee is an associate at Vinod Kothari & Company)
http://www.moneylife.in/
But if when buyer and seller live at two different places, real problem of jurisdiction arises.
If 100 people like me go to Delhi from different corners of the country and buy car by giving payment through cheque and seller deliver the cars to all trusting cheques and then these cheques are returned unpaid by drawee bank, payee, the seller will have to file court case in different parts of the country from where buyer had come to Delhi to buy car.
In return, retailers/ buyers handover current dated or postdated cheques to the party as a token of payment. In such case if buyer i.e. the drawer of the cheques returns the cheque unpaid when presented for payment, seller will have only legal recourse to recover the money from such cheat retailer. In past, such sellers used to file case in Surat itself. But now in view of Supreme Court order, they will have to file cases in different towns where the retailer failed to honour the cheque.
The clear message is that now onwards all dealers and all sellers will insist for local cheques in lieu of goods sold or to be sold or they will prefer cheques drawn on local banks only i.e. Draft if it comes from location away from that of seller’s location. It means that the trust on cheque is diluted by Supreme Court order mentioned above. Latest order of apex court is nothing but direct attack on reliability and trust of cheque which was created during last five to ten years after introduction of advance technology in almost all banks.
I do not mean to say that court order is right or wrong, what I mean to stress that it has caused erosion in value and respectability of cheque. In foreign countries, cheques issued in payment is treated as good as cash payment.
Hence I am of strong opinion that cheques should be so much reliable and trustworthy that people treat it as cash. If it happens so, it will help in reduction of cash transaction to a great extent and also have positive impact on the economy. Rather GOI should make it mandatory for all citizens to make payment only by account payee cheques and drafts if the payment is of value more than Rs.5000o. Such rule will help is reduction of cases of tax evasion and increase tax compliance to a great extent. GOI can multiply revenue income many times only by restricting cash payment system.
Here it will be proper to mention that after adoption of Core Banking Solution (CBS) by almost all banks, cheques issued and drawn by a person or a commercial entity is normally Multi-city cheques. Or you can say majority of cheques issued now-a-days are payable all over the country. The system of sending of outstation cheque to the location of drawer and waiting for 10 to 15 days for payment is no more needed. In most of the cases cheques issued from anywhere in the country are cleared in the location where bank of payee is situated.
A few years ago, when Court and GOI made the law related to cheque bounce case stringent, drawer of cheque became alert in fear of punishment. Reliability of cheques moved to greater height first in fear of legal action and secondly due to its encashability anywhere in the country.
But now after the said ruling of Supreme Court, people will not like to accept outstation cheque as payment for goods sold or services extended or to be extended. . Because if the cheque is returned unpaid in want of adequate fund, he or she will have to bear with loss or spend time, manpower and money in filing a case in the location of issuer of cheque.
The fact is that real guilty is issuer of cheque who issued the cheque and then did not keep adequate balance to ensure honoring of cheque. It is issuer and drawer of cheque who cheated the seller of goods and services by issuing false cheque. But unfortunately the Apex court instead of punishing the real guilty thought it better to force payee to go through difficult course of action of filing and contesting the case till its logical end. There may be some good logic and good reason in the minds of learned Judge before signing such orders. However GOI or RBI should look into the matter and ponder over the consequences of the said order in the larger interest of the country. It is necessary to point out there that issuer of cheque can manage at his location required papers and attend court in time if payee files a case against him in local court. But the payee will have to manage person, money, time, and ticket for journey and lastly severe harassment in attending hundreds of dates at remote location. Obviously to avoid such awkward situation majority of sellers will avoid accepting outstation cheques or deliver the goods only after the cheques is paid into his account.
Obviously the consequence of latest order given by Supreme court, value and usage of cheques will be limited and confined to local areas i,e, within the area of jurisdiction of local court. It will reduce the importance of multi-city cheques so far its acceptability is concerned. Perhaps Supreme Court desires that buyer of cheque uses it only in the location where he lives.
Last but not the least, in view of increasing number of cheque bounce case in courts, either court or GOI should make arrangement for disposal of such cases in time bound programme of say 15 days. In recent past Court issued guideline for quick disposal of causes related to cheque bounce cases. If GOI frames adequate rule in unison with spirit of court order, it will be a great help to people who have been cheated by fraud-minded drawers of cheques.
Cheque bouncing: Supreme Court's verdict on jurisdiction
Clearing all controversy, the Supreme Court ruled that the jurisdiction of such cases have to be the location where the cheque bounced, meaning the bank of the person, who issued the cheque and not the bank location of the complainant
Prosecuting jurisdiction in a cheque bouncing case has been a highly contested issue since very long. The issue has revolved around the point of determination.
Where would someone file a case for cheque bouncing out of the following venues?
• Location of the bank of Complainant • Location of bank of issuer • Location of origin of legal notice • Where the legal notice was received
In the Dasrath Rupsingh case, a three Judge Bench of the Supreme Court has finally laid the controversy to rest.
By and large, complaints pertaining to cheque bouncing are instituted where the bank of the complainant is. Before the Supreme Court decided the case of Harman Electronics, complainants used to file a large number of cases on the basis of the location of their attorney, not of any bank, who would send the legal notice for a cheque having bounced.
The Court noted that the law of cheque bouncing was being misused rampantly. Complaints were filed in Delhi just because lawyers were issuing notices from there, even though the bank of the payer or the payee were outside Delhi.
The Supreme Court has effectively put an end to this harassment at the hands of the Drawee. Last year, in the Nishant Aggarwal case, the Supreme Court again addressed the prosecuting jurisdiction aspect. A two Judges Bench of the Supreme Court held that the complaint under Section 138 can be filed at the jurisdiction where the bank of the Complainant is situated.
In the Dasrath Rupsingh case, the apex court has cleared the controversy once and for all. The Bench stated that the factor for determining jurisdiction has to be the location where the cheque bounced, meaning thereby, the bank of the person who issued the cheque and not at the place the intimation of dishonour reaches, i.e, bank of the complainant.
The Bench further held that the offence under the section shall occur when the cheque is returned unpaid. The Bench notes that the cheque bouncing law should not be allowed to become a tool for harassment. There had been cases where the complainant would deposit the cheque and/or issue a legal notice from a place that was totally unrelated to the transaction in question-- in a possibe attempt to harass the other party.
The Bench also safeguarded the interests of genuine creditors in such a scenario. A person/ company can insist that the payment shall be made through cheque in question, payable at a particular location convenient to the creditor.
It is also important to note that the remedy under the Negotiable Instruments Act is in addition to the provisions of the Indian Penal Code (IPC) and not as an alternative. Meaning that the case for cheque bouncing will be maintainable only where the bank of the drawee is, but if the creditor can demonstrate that various acts of the transaction took place in another jurisdiction, like his office/ residence, then he can maintain a separate action for fraud, cheating and forgery.
Then there is also an option before the Complainant to institute a civil suit for recovery against the person who issued the dishonoured cheque. Status of the pending cases: After ruling that the proper jurisdiction to hold trial in a cheque bouncing case is where the bank of the alleged accused is situated, the Bench passed an order dealing with the currently pending cases.
In all those matters where the alleged accused has appeared after summoning and his evidence under Section 145 has commenced, those cases will remain where they are already pending. In all other matters where the evidence by examination under Section 145 has not begun, the case will be returned to the complainant to institute at the jurisdiction where the bank of the accused is situated.
Reading any judgement by Justice Vikramajit Sen is an excellent experience and this one is no different. However, in a separate judgement, Justice TS Thakur has also given elaborate findings regarding the confusionaround cheque bouncing matters.
When offence of dishonour of cheque is not made even though accused has given stop payment instruction?
Stop payment instructions whether are covered by Section 138 of the Negotiable Instruments Act, 1881 (NI Act) or not, was the subject matter of controversy before the Court.
High Court in its impugned finding had held that provisions of Section 138 of the NI Act are attracted where a cheque is returned by the bank on the ground that there is insufficient amount or that the amount of cheque exceeds the amount arranged to be paid from that account by an agreement made with the bank.
It was further held that the cheque in question was returned on account of "stop payment" instructions given by the accused in view of the fact that the complainant had failed to discharge its obligations as per the agreement executed between them. The High Court had further observed that the complainant had not disclosed complete facts as required under provisos (b) and (c) of Section 138 of the NI Act and accordingly had quashed the complaint.
The Court held that the impugned finding of the High Court was incorrect as even "stop payment" instructions issued to the bank are held to make a person liable for offence punishable under Section 138 of the NI Act in case cheque is dishonoured on that count. Once the cheque is issued by the drawer a presumption under Section 139 of the NI Act must follow and merely because the drawer issues a notice to the drawee or to the bank for stoppage of the payment it will not preclude an action under Section 138 of the NI Act by the drawee or the holder of the cheques in due course.
The Supreme Court relied upon its previous judgement in the matter of MMTC Limited Vs Medchl Chemicals and held even when the cheque is dishonoured by reason of stop-payment instructions by virtue of Section 139 the court has to presume that the cheque was received by the holder for the discharge, in whole or in part, of any debt or liability. of course this is a rebuttable presumption. The accused can thus show that the "stop-payment" instructions were not issued because of insufficiency or paucity of funds. If the accused shows that in his account there were sufficient funds to clear the amount of the cheque at the time of presentation of the cheque for encashment at the drawer bank and that the stop-payment notice had been issued because of other valid causes including that there was no existing debt or liability at the time of presentation of cheque for encashment, then offence Under Section 138 would not be made out.
The important thing is that the burden of so proving would be on the accused. Thus a court cannot quash a complaint on this ground. Whether complainant had failed to discharge its obligations or not could not have been decided by the High Court conclusively at the stage when it was dealing with a petition filed under Section 482 of the Code for quashing the complaint. Whether any money is paid by the accused to the complainant is a matter of evidence. The accused has ample opportunity to lead his defence.
When cheques bounce-Hindu Business LIne
Cheque bouncing is one of the most common offences in the country, with over 40 lakh pending cases in the Supreme Court. A cheque can bounce for several reasons such as insufficiency of funds, mismatch in signature, stale cheques, post-dated cheques or if there are corrections in the cheque without authentication. The bank collects a penalty from the defaulter when a cheque bounces. The person issuing the cheque can even get a jail term.
All that’s fine, but what are the remedies if you’ve been issued a cheque which has bounced?
Legal action
Almost every bank gives a ‘cheque return memo’ along with the returned cheque stating the reason for the bounce. If you hold the cheque, you need to inform the drawer and ask if you can re-present it to the bank within the 3-month period.
If cheque is dishonoured even the second time, then you can take legal action. As a first step, you can send a legal notice to the defaulter within a period of 30 days from receiving the cheque return memo. The notice should contain all necessary details.
The defaulter needs to make a fresh payment within a period of 15 days from the receipt of this notice. If he still doesn’t make the payment within this time period, then you can file a complaint in the magistrate court. This case should be filed within a maximum period of 1 month from the date of expiry of the 15-day period.
Remember that the complaint should be filed within the time frame. If complaints are made outside the time frame, then the case becomes time barred and will not be entertained. When your case comes for hearing, the defaulter can be punished with a jail term for two years and/or a penalty which can be up to twice the cheque amount. The defaulter can appeal against the order within a period of 1 month of judgement.
However, it may not be so straightforward all the time. Here are two common instances when cheques bounce and what can be done.
Rent cheques
Sometimes, it may so happen that the tenant does not have the funds simply because the landlord did not drop the cheque at the expected time. Therefore, the landlord is bound to first inform the tenant and only then proceed with the legal process. There may be another case when the tenant wishes to set off an amount from a particular month’s rent towards some expense he incurred on behalf of the landlord, which the latter refuses to pay. If there is a cheque bounce because of this, the criminal case will continue against the tenant till he is able to establish that there was a legitimate set-off.
EMI cheques
Banks don’t normally file cases against bounced EMI cheques as the first step. Hefty penalties, loan default charges and cheque bounce charges are levied first. These keep building up for every month of default and added to the EMI amount. Also, the defaulter’s credit rating gets affected with every default he makes. In case of secured loans, banks also have the security as collateral. If the borrower does not make payments even after repeated reminders, the bank can give sufficient notice and auction the security to recover the dues.
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To fast-track cheque-bounce cases, SC issues guideline
Written by Utkarsh Anand | New Delhi | April 26, 2014 1:51 am
With more than 40 lakh cheque-bounce cases choking the justice delivery system in the country, the Supreme Court has issued slew of guidelines, including issuance of summons through e-mails and completion of evidence within three months, to prevent further piling up.
A bench of Justices K S Radhakrishnan and Vikramjit Sen laid down guidelines to be uniformly followed by all magisterial courts dealing with cheque-bounce cases under pertinent provisions of the Negotiable Instruments Act for a "speedy and expeditious disposal".
Directing for a day-to-day trial, the court said that a magistrate shall issue summons on the same day he receives a complaint, provided documents are in order. It held that a magistrate need not call a complainant twice for recording his statement, once at pre-summoning stage and another after issuance of summons, and taking an appropriate affidavit from him should suffice.
The summons should be issued immediately by post as well through e-mails. The court said that summons should apprise an accused that he could show up in the court and compound the offence on the same day.
"Once the court issues summons and the presence of the accused is secured, an option be given to the accused whether, at that stage, he would be willing to pay the amount due along with reasonable interest and if the accused is not willing to pay, court may fix up the case at an early date and ensure day-to-day trial," it said.
At the stage of recording of evidence, the bench said, the court concerned must ensure that examination-in-chief, cross-examination and re-examination of the complainant is conducted within three months of assigning the case. "The court has option of accepting affidavits of the witnesses, instead of examining them in court," it added.
The order came on a petition by the Indian Banks Association, which is the representative body of banks in India with over 174 banks and financial institutions as its members. Its counsel Lalit Bhasin had asserted the need to have uniform practice across courts in the country to ensure cases do not drag in courts on account of unnecessary and unwarranted procedural delays.
What the court says
* No need for complainant to record his statements in court more than once; affidavit can be filed.
* Summons to be issued to the accused on the same day the magistrate receives the complaint.
* Summons to be issued also through e-mails, besides normal post.
* Accused can offer a settlement the day he shows up in court and the magistrate shall dispose of the case.
* All evidence to be recorded within three months and verdict to be delivered shortly.
* Magistrate can receive affidavits from the witnesses too, dispensing their personal presence.
http://indianexpress.com/
SC: No overkill in cheque bounce cases
Once the amount in a dishonoured cheque is paid with interest and compensation, the payee cannot insist on criminal prosecution of the directors of a firm who issued the cheque. The object of Section 138 of the Negotiable Instruments Act, which makes issuing of cheques without sufficient balance in the account an offence, is meant to "inculcate faith in the efficacy of banking operations and credibility of transactions. It is not meant only to punish the guilty," the Supreme Court has stated in the judgment, Lafarge Aggregates & Concrete India Ltd vs Sukarsh Azad.
In this case, directors of a construction company issued a cheque to Lafarge, but it was dishonoured by the bank leading to a criminal complaint before the magistrate. The directors moved the high court and offered to pay the amount with interest. The high court, therefore, quashed the complaint. Lafarge was not satisfied with that and appealed to the Supreme Court for prosecution of the directors.
The court dismissed the appeal observing that the directors were willing to pay double the amount. It stated that Lafarge did not appear before the high court without sufficient reason, leading to an ex parte order quashing the complaint. Moreover, it approached the Supreme Court after a long lapse of time. Under these circumstances, "if the amount offered including interest and compensation was not acceptable to Lafarge, it is their choice," the judgment said, "but that would not allow them to prosecute the directors in pursuance of the complaint."
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