Cheque Bounce Prosecutions
Cheque Bounce Prosecutions: Overview
Cheque bounce cases are governed primarily by Section 138 of the Negotiable Instruments Act, 1881. When a cheque is issued and it bounces due to insufficient funds or other reasons, the payee can initiate criminal proceedings against the drawer.
Essential Ingredients under Section 138:
Cheque must be drawn on a bank account.
Cheque must be presented within the validity period (usually 3 months from date of issue).
Cheque must be returned unpaid by the bank.
Payee must send a legal notice within 30 days of receiving information of cheque bounce.
Drawer must be given 15 days to make payment from the date of receipt of notice.
If the payment is not made, the payee can file a complaint within one month from the expiry of 15 days.
Important Case Laws on Cheque Bounce Prosecutions
1. K.N. Beena vs. Kerala State Financial Enterprises Ltd. (1994) AIR 1918
Facts:
In this case, a cheque was dishonored due to insufficiency of funds. The accused argued that the notice sent was defective.
Key Points:
The Supreme Court held that a legal notice under Section 138 is mandatory.
The notice must specify the facts clearly to allow the drawer to make payment.
Failure to send a proper notice results in dismissal of the complaint.
Importance:
This case clarified that compliance with procedural requirements like notice is essential for prosecution under Section 138.
2. M.S. Narayana Menon vs. State of Kerala (1998) AIR 2994
Facts:
The accused contended that no cheque was ever issued, and the complaint was false.
Key Points:
The Supreme Court held that the cheque itself is prima facie evidence of the debt or liability.
However, the court can consider the drawer’s defense if he can prove no debt or the cheque was given as a gift or for illegal purpose.
The prosecution must establish the elements beyond reasonable doubt.
Importance:
This case emphasized that the cheque is evidence of debt, but defense can be raised, making trials fair.
3. R. Mohan Kumar vs. Prahlad Singh and Anr (2011) 1 SCC 212
Facts:
The cheque was dishonored, but the accused claimed that the payee had accepted post-dated cheques as security.
Key Points:
The Supreme Court observed that only dishonor for insufficient funds or closure of account triggers liability under Section 138.
Dishonor due to mismatch in signatures or account closure has to be treated differently.
Post-dated cheques cannot be treated as unconditional payment instruments.
Importance:
The case highlighted valid grounds for cheque dishonor and limits of Section 138 applicability.
4. B. Krishna Mohan Reddy vs. K. Ramakrishna Reddy (2006) 9 SCC 741
Facts:
The accused challenged the notice, arguing it was sent after the stipulated period.
Key Points:
The court held that the notice must be sent within 30 days from the date on which the drawer gets information from the bank regarding the cheque bounce.
Delay in sending the notice is fatal to the prosecution.
This ensures that the drawer is given a fair chance to make payment promptly.
Importance:
This case reinforced strict adherence to procedural timelines under Section 138.
5. V. B. Rangaraj vs. State of Tamil Nadu (2003) 11 SCC 618
Facts:
Cheque was returned unpaid due to "payment stopped by drawer".
Key Points:
The Supreme Court held that dishonor due to “stop payment” instructions by the drawer also attracts Section 138.
The rationale is that the drawer intends to dishonor the cheque, similar to insufficient funds.
The court distinguished it from dishonor due to technical reasons.
Importance:
This case expanded the scope of Section 138 to include "stop payment" dishonors.
Summary
Section 138 protects the payee by criminalizing the act of cheque bouncing due to insufficient funds.
The legal notice and strict timelines are vital procedural requirements.
The cheque itself is strong evidence, but the drawer can raise defenses.
Dishonor reasons like insufficient funds or stop payment attract liability, while technical reasons may not.
Courts have emphasized both strict compliance with the law and fair trial rights of the accused.
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