How To Defend Yourself From A Cheque Bounce Case?

Nowadays, post-dated checks are frequently used in transactions, and cheques are a common form of payment. When this method of payment rose in popularity, there were instances where the checks were dishonoured or bounced and the payee did not get paid for providing the goods or services. The need to criminalise this act of dishonoured or bounced checks was then recognised. Therefore, the criminalization of writing checks with an insufficient balance in the account of the drawer was implemented in 1988. In order to make such an offence a crime, the Negotiable Instruments Act of 1881, an old British law, as amended.

Overview of the Act

The Negotiable Instruments Act, of 1881, regulates the use of negotiable instruments, which are pieces of paper that represent amounts of money that belong to one person but can be delivered to another.

• According to Section 13 of this Act, a promissory note, a bill of exchange, or a check made payable to the order of or to the bearer are all considered negotiable instruments. Therefore, if a legal definition or common use defines an instrument as being negotiable, such as for banknotes, bank draughts, share warrants, bearer debentures, divided warrants, scripts, and treasury bills, then it is negotiable.
   
• According to Section 4 of this Act, a promissory note is a written document that conveys a maker's unconditional promise to pay a specific individual or the holder of the document a certain amount of money. Additionally, this item is not a banknote or a piece of currency. Drawee is a potential human.
   
• A bill of exchange, also known as a draught, is a written document that contains an unconditional order, is signed by the maker, and instructs a specific person to pay a certain sum of money to a specific person or the instrument's bearer. A drawer, a drawer, and a payee are the parties to a bill of exchange. In the case of a bill of exchange, the drawee could be a person or a bank. This is an illustration of a debtor's obligation to a creditor.
   
• A check is a bill of exchange issued on a certain banker and not payable otherwise on demand, according to Section 6 of this Act. It is a drawer's or depositor's order at a bank. The drawer, drawee, and payee are the three parties to a check. Only one bank may be the drawee. Its validity is set at three months.
   
• The penal provisions under this Act are found in Sections 138 to 142, and they make it a crime to bounce or dishonour a check.

What is a Cheque Bounce?

Cheques that are returned unpaid by the bank because there are not enough funds in the drawer's account, among other factors, bounce. It is also known as "dishonoured checks." Due to several factors, the payment made by the drawer to the drawee is dishonourable. According to the law, the person who issues the check is known as the drawer, and the person to whose benefit it is issued is known as the drawee.

Reasons for Cheque Bounce

The bank issues a cheque return memo along with the reasons for the cheque bounce when the check is bounced or dishonoured. The following are potential causes for a bounced check:

• The drawer's signature does not line up.
   
• The check has been overwritten.
   
• The check was provided after it had been good for three months, so it is no longer legitimate.
   
• The drawer's account is now closed.
   
• The drawer's account is insufficiently funded.
   
• The account holder themselves have stopped the payment.
   
• Not enough opening balance.
   
• There are discrepancies between the wording and the numbers on the check.
   
• If a business issues a check but it does not bear its seal.
   
• There is a mismatch in the account number.
   
• The signatures of both holders are necessary if the account being drawn on is a joint one. Additionally, if there is only one holder's signature, the check is returned unpaid.
   
• The deceased drawee or drawer.
   
• The drawer is now bankrupt.
   
• The drawer has lost his mind.
   
• Checks are crossed in it.
   
• If the trust's rules were broken when the check was issued.
   
• If the check has been changed in any way.
   
• If the bank questions the validity of the check.
   
• If the drawee submitted the incorrect branch.
   
• If the amount of the check exceeds the overdraft limit.

Section 138 of the Negotiable Instruments Act

The Negotiable Instruments Act of 1881's Section 138 describes how to dishonour a check if there is insufficient money in the account, among other reasons. When someone who maintains a bank account issues a check to another person for the payment of a specific amount of money from that account to discharge any outstanding debt or other liability, whether in full or in part, and that check is returned by the bank unpaid either because the amount of money in that account's credit is insufficient to honour the check or if it exceeds the amount of money arranged to pay the debt by the account holder.

Without affecting any other stipulations of the Negotiable Instruments Act, such a person or that bank account holder shall be considered to have committed a check dishonour offence and shall be punished/ detained with a maximum of one year in prison, a fine that may reach twice the amount specified in the check, or both. A violation of this clause is both bailable and non-cognizable.

Factors for constituting the offence under Section 138

• The drawer's check must have been presented to the bank during the check's validity period, which is three months from the date of issue.
   
• If the bank has returned the check as unpaid for any reason, the payee must first have sent a written notice to the drawer in the proper course of the check requiring that they pay the specified amount within 30 days, along with a receipt for the information that the check was returned unpaid by the bank.
   
• The drawer has not yet made the required payment 15 days after receiving the notice, even after it was sent.

Therefore, in order to commit a check bounce offence U/S 138 of the Negotiable Instruments Act, the aforementioned requirements must have been met. In the 2013 case of MSR Leathers v. S. Palaniappan, the court made this ruling.

Jurisdiction

• According to Section 142(2)(a), if a check is delivered for collection through an account, the case for the offence of cheque bounce will be heard by a court not lower than a Metropolitan Magistrate or a Judicial Magistrate of the first class, whose local jurisdiction includes the branch of the bank where the account holder's concerned account is located.
   
• According to Section 142(2)(b), the case will be heard by a court no lower than a Metropolitan Magistrate or a Judicial Magistrate of the first class, whose local jurisdiction includes the branch of the bank where the account of the holder in question is located, if the check is presented for payment of the payee or holder in due course through an account.

How to Defend a case under Section 138

These can't always work in the payee's favour. Cheques frequently bounce for other causes besides those indicated above. Since the burden of proof rests with the accuser, the drawer has a number of defences at his or her disposal, using which he or she may establish their innocence or enter a plea of not guilty by demonstrating that the debt in question is not legally enforceable.

The cheque bounced given as a Security

If the defendant or the bearer of the check can show that no obligation or liability was discharged when the check was issued and that it was just a security deposit, then the violation of Section 138 of the NI Act is not committed.

Joseph Vilangadan v. Phenomenal Health Care Services

In this instance, the appellants maintained that there was no outstanding debt or responsibility and that the supplied cheque was the refundable security deposit to secure the completion of the work and compliance with the contract's provisions. Additionally, when the contract was signed, the drawer had no debt or liabilities, and it was stated in the terms of the agreement that the respondent might enact and reclaim the money if the contractor failed to provide the services. But because the task was done, it did not fall under the jurisdiction of Section 138, so it is not a crime.

Friendly loan concerning unaccounted money

Liability to pay an unexplained cash amount is not covered by Section 138 of the Negotiable Instruments Act. Therefore, it is not legally enforceable to repay a debt that was supplied in the form of unaccounted cash.

Sanjay Mishra v. Ms Kanishka Kapoor

The respondent denied signing both the bill of exchange and the cheque in this case, and the court found that the applicant had failed to establish that the amount advanced was unaccounted for and that it was not disclosed to the Income Tax Authority. The applicant also admitted that the amount advanced was unaccounted for and was not disclosed to the Income Tax Authority, according to the learned judge.

Accused of disputing the signature on the cheque

If the accused contests the signature on the check, only the banker could produce any trustworthy evidence that the check bounced because the signatures did not match. To prove that the signature on the check is not the accused's, the bank manager must produce all documents pertaining to the accused's signature.

“Stop payment”, as instructed by the Drawer

If a claim is made under Section 138 of the NI Act that the cheque was invalidated because the drawer had given orders to halt the transaction, Therefore, in these situations, the accused must demonstrate that there were adequate monies in the account at the time the payee went to the bank to cash it, but the payment was halted for other reasons; otherwise, Section 138 will not apply. The same ruling was made in the case of MMTC Ltd. v. Medchi Chemicals and Pharma (P) Ltd., which stated that if the accused can prove that there were sufficient funds when the check was presented but that the stop-payment notice was issued for legal reasons, then the stop-payment notice will not be enforced.

Section 139 of the Negotiable Instruments Act

In accordance with Section 139, unless the opposite can be demonstrated, it shall be presumed that the payee received the check of the type indicated in Section 138 for the discharge, in whole or in part, of any debt or liability.

There is no doubt that the accused can refute this assumption by a "preponderance of the evidence." Therefore, the prosecution may be unsuccessful if the accused establishes a likely defence that raises a reasonable question regarding the existence of a legally enforceable debt or liability. In many instances, the accused did not need to provide their own or additional evidence; they might accomplish so by relying solely on the materials or evidence presented by the prosecution.

Conclusion 

By punishing the offence of a bounced check, the Negotiable Instruments Act helps to prevent the mishandling of checks and ensures that transactions go off without a hitch. Additionally, the accused has defences at their disposal to prevent fictitious instances of check bounce or dishonour. But because they contain so many complexities and call for extremely precise verification of the transactions, incidents of check bounce must be handled with extreme caution. It differs from other cases of offences.