INTRODUCTION
Cheques are one of the most extensively used instruments of payment. There are three parties to a cheque – Drawer, Drawee and Payee. The definition of cheque is given under Section 6 of the Negotiable Instruments Act 1881. In a transaction involving a cheque, drawee is always the bank. In India, Section 138 governs the punishment for the dishonour of a cheque in relation to the discharge of a debt or liability. This provision was added through the Public Financial Institution and Negotiable Instruments Laws (Amendment) Act 1988. It was observed that there were a lot of cases wherein cheques were being issued with insufficient funds in the account of the drawer. Therefore, to prevent such incidents the legislature added Section 138 to the Negotiable Instruments Act 1881. The Legislature had further amended the NI Act in 2018 to protect the rights of the aggrieved party.
SECTION 138
This Section states that when a cheque is drawn by a person on an account maintained by him with a banker for payment of any debt or liability either in whole or in part to another person is returned by the bank unpaid either on account of insufficiency of funds on the account of the drawer or if the amount drawn exceeds the amount that is to be paid from that account under an agreement made with the banker. The person/drawer shall be punished with imprisonment for a term which may extend to two years or may also be punished with fine which may be twice the amount of the cheque or may be punished with both.
It is important to note that Section 138 prescribes certain conditions under which Section 138 will apply. The payee or the holder in due course should make a demand for the amount mentioned in the cheque by notice in writing to the drawer within thirty days of the receipt of notice from the bank regarding the dishonour of the cheque. Second, the drawer must fail to make the payment to the payee or holder in due course within fifteen days from the receipt of the said notice. Lastly, the cheque must be presented to the bank within a period of three months from the date on which it is drawn or within its validity period, whichever is earlier. These three conditions have to be met for Section 138 of the Negotiable Instruments Act 1881 to apply. Further, the cheque should be drawn for the payment of a legally enforceable debt.
2018 AMENDMENT TO NI ACT 1881
It was observed that the disposal of cases under Section 138 of NI Act 1881 was taking a very long time and there was undue delay in disposing off the cases. To address this issue, the Parliament had amended the Negotiable Instruments Act in 2018 and added two new sections to the statute – Section 143A & Section 148.
SECTION 143A
Under Section 143A of the Negotiable Instruments Act 1881, the court has the power to direct interim compensation to be paid by the drawer of the cheque to the aggrieved party. However, this can take place only in two occasions. First, when the accused pleads not guilty to the accusations made in the complaint in a summary trial or summons case. Second, upon the framing of charges in cases other than a summons case or summary trial. The interim compensation that is to be paid should not exceed twenty percent of the total amount of the cheque. The interim compensation should be paid within sixty days from the order of the court or a further period of another thirty days if sufficient cause is shown for the delay by the drawer of the cheque in the payment of the amount. The provision of interim compensation ensures that interests of the complainant are taken care of and he/she received at least some of the amount from the drawer of the cheque until the charges are proved against the drawer. This is crucial as cases under Section 138 of the NI Act take years to get dispose off and the complainant might not get any relief before the disposal. Being an equitable provision, Section 143A also states that if drawer of the cheque is acquitted, the court shall direct the complainant to pay the amount of interim compensation with interest rate within sixty days from the date of the order or within a period of another thirty days if sufficient cause is shown by the complainant for delay in payment.
In the landmark case of GJ Raja v. Tej Surana (2019),the question before the court was whether Section 143A is prospective or retrospective in nature and whether it can be applied to cases under Section 138 before the introduction of Section 143A. The Court held that there are two dimensions to this provision. First, it imposes liability on the drawer to pay upto 20% of the amount of the cheque as interim compensation without being guilty in the eyes of law. Second, it held that interim compensation must be treated as land arrears for the recovery of the amount. Therefore, the Supreme Court held that Section 143A of the NI Act must be treated as prospective in nature and should only be limited to offence committed after the enactment of Section 143A.
SECTION 148
Under Section 148 of the act, the appellate court can direct the drawer to deposit a sum which shall not be less than twenty percent of the fine or compensation awarded by the Trial Court. This could take place after an appeal has been filed by the drawer against the conviction under the offence under Section 138 of the NI Act. The amount payable should be in addition to the amount paid under Section 143A. Therefore, the drawer could be asked to pay a total of 40% of the amount of the cheque if w read both the sections together. The amount shall be deposited within a period of sixty days from the date of order from the appellate court or a thirty-day extension could be granted if sufficient cause is shown by the drawer for the delay in depositing the amount. The appellate court could direct the release of the amount to the complainant at any time during the pendency of the appeal. If the appellant is acquitted, the court can direct the complainant to pay the amount so released within a period of sixty days from the order of the court or an extension of a further thirty days could be granted by the court if sufficient cause is shown by the complainant.
In the case of Surender Singh Deshwal v. Virender Gandhi (2019), the Supreme Court held that Section 148 had a retrospective effect. It was observed that the aim and object of Section 138 was being frustrated due to filing of multiple appeals and obtaining stay on proceedings and this is the reason behind the addition of Section 148. The reason why Section 143A is prospective in nature while Section 148 is retrospective is because Section 143A applies at the trial stage where the accused has not yet been declared guilty while Section 148 applies at the appellate stage where the drawer has already been found guilty.
CONCLUSION
To prevent the dishonour of cheques in lieu of discharge of legally enforceable debt, the legislature introduced Section 138 to the Negotiable Instruments Act 1881. However, even after the enactment of this provision, it was seen that the disposal of cases was taking a long time and the entire purpose of Section 13 was being defeated. To avoid this issue, Section 143A and Section 148 was added to the NI Act. Section 143A allows for interim compensation to be paid to the complainant at the trial stage while Section 148 allows for compensation at the appellate stage.
Contributed By : Kritavirya Choudhary (Intern)