This article has been written by Oishika Banerji and further updated by Kanika Goel. This article in itself is a detailed analysis of the Negotiable Instruments Act, 1881 including all the details about negotiable instruments like promissory notes, bills of exchange, or cheques in India. This article also covers the relevant and important concepts underlying the statute. Let us delve into this article to understand every aspect of the Act including the relevant and important case laws, recent issues, and recent amendments.
Table of Contents
Prior to the enactment of the Negotiable Instruments Act, 1881 (hereinafter referred to as the NI Act), the English Negotiable Instruments Act was applicable in India in order to govern the functioning of the negotiable instruments. However, the question which arises here is, what exactly is a negotiable instrument? Before getting to know all the incidental concepts of a negotiable instrument, it is important to understand the concept of the same. The term “negotiable instruments” is not composed of just one meaning. Rather, it derives various meanings depending upon its mode of implementation or the laws through which it becomes applicable in a country. A negotiable instrument in general is considered to be a paper or a document that ensures that a sum of money is paid upon the demand of the payee or at times, immediately. It is pertinent to note that some of such instruments also guarantee unconditional payment of money (for example, in the case of a bill of exchange or a promissory note).
The NI Act basically covers three major types of instruments namely, bills of exchange, promissory notes, and cheques. Apart from these modes of payment via the instruments, NEFT (National Electronic Fund Transfer) and RTGS (Real Time Gross Settlement) also serve as two additional modes of payment.
This article aims to discuss all the aspects of the NI Act, 1881 which came into force on 1st March 1882, and is applicable to the whole of India.
The objective behind the NI Act, 1881 is to ensure that the entire system by which the negotiable instruments are governed is strengthened and legalised in a way that one person can pass an instrument and pay a certain amount of money to another by way of negotiation. The intent behind the formation and enforcement of this Act was to put forth an orderly statement of rules relating to the negotiable instruments.
The NI Act aims to define and amend the law relating to the instruments covered under the Negotiable Instruments Act, 1881. The Act is composed of a total of 148 Sections divided into 17 chapters which are depicted below:
As per Section 14 of the NI Act, 1881, an instrument is said to be negotiated when that particular instrument is transferred to a person making that person the “holder” of the instrument. As per the provisions of the Act, there are two conditions to be fulfilled while negotiating an instrument:
An instrument may be negotiated in the following two ways:
As per Section 51 of the Act, any maker, drawer, holder, payee, or even joint makers or payees can endorse or negotiate an instrument provided that they are not restricted to do so under Section 50 of the Act.
The word “instrument” refers to a written document by virtue of which a right is created in favour of some individual. In order to understand the meaning of the term “negotiable instrument”, it is important to know the meaning of the term “negotiable”. An instrument is considered to be “negotiable” when it can be freely transferred from one party to another for some value and in good faith and the party to that instrument can sue in his own name. It is important to note that the term is not explicitly defined under the Act but Section 13 of the NI Act, 1881 gives an inclusive definition that a negotiable instrument means a bill of exchange, promissory note, or a cheque that is payable on order or otherwise.
The main distinction between a negotiable instrument and other documents (or a chattel) is that, in the case of a negotiable instrument, the transferee acquires a good title in good faith and for consideration even though the transferor’s title may have a flaw; in contrast, in the case of other documents, the transferee receives a similar title (or, to put it another way, no better title) than the transferor.
A document that is usually transferable from one person to another is often considered a “negotiable instrument”. Though the term is undefined in the Act, but as per Section 13(1), it includes a promissory note, a cheque, or a bill of exchange.
As quoted by Justice Willis, a negotiable instrument is defined as “an instrument, the property in which is acquired by anyone who takes it bona fide, and for a value, notwithstanding any defect or title in the person from whom he took it, from which it follows that an instrument cannot be considered as negotiable unless it is such and in such a state that the true owner could transfer the contract or engagement contained therein by simple delivery of instrument.”
For an instrument to be negotiable, there has to be fulfilment of certain conditions which are as follows:
There are various categories of negotiable instruments some of which find a place in the NI Act, 1881 as well. Let us understand about these classifications in brief:
These instruments as mentioned under Section 11 of the NI Act, 1881 are the ones which are either payable in India or drawn upon a person who is a resident of India. These types of instruments include promissory notes, bills of exchange, or cheques as well.
Foreign instruments are the ones which are not considered as inland instruments. This also implies that such type of instrument shall be either payable or drawn upon a person who is not a resident of India or such type of instrument is drawn and made payable outside India. Foreign instruments are mentioned under Section 12 of the NI Act, 1881.
Bearer instruments include promissory notes, bills of exchange, or cheques under the conditions that such instruments are expressly payable or endorsed in blank.
Such types of instruments are usually payable on order which may be to a specific person or when there is no type of restriction in the transferability of that particular instrument.
When there is no time mentioned for the instrument to be payable and the instrument can be made payable on either presentation or on sight, such types of instruments are considered to be demand instruments under Section 19 of the NI Act, 1881.
As per Section 20 of the NI Act, 1881, an inchoate instrument is considered to be that instrument which is signed and delivered on a stamped paper by one party either wholly blank or as an incomplete negotiable instrument. It can also refer to an unregistered instrument which becomes effective only when the prima facie error is removed. In simpler words, an inchoate instrument is any cheque, pro note, or bill of exchange that is signed by the maker despite being unfilled or unrecorded. Few judicial pronouncements (e.g., Magnum Aviation (Pvt.) Ltd. vs. State and Ors (2010)) recognise or regard a cheque as an inchoate instrument if it lacks one or more essentials listed in the characteristics of the negotiable instrument.
The type of instrument that is unclear on the face of it as to how it is to be treated is known as an ambiguous instrument. Under Section 17 of the NI Act, 1881, the power to treat an instrument as a bill or a note vests with the holder of the instrument.
As per Section 13 of the Act, the classification of the negotiable instruments is made into 3 broad categories which are as follows:
Let us understand the basics and the important characteristics of the above-mentioned instruments in detail.
According to Section 4 of the NI Act of 1881, a written instrument (not a banknote or currency note) that contains an unconditional undertaking, signed by the maker with the promisor with the promise to pay a specific amount of money only to, or at the direction of, a specific person, or to the bearer of the instrument, qualifies as a negotiable instrument. Regardless of whether it is negotiable or not, an instrument that complies with the definition in Section 4 of the Negotiable Instruments Act, of 1881 must be regarded as a promissory note.
I _________ (debtor), S/o _______, PROMISE TO PAY ________ (creditor), S/o _________, or ORDER, on demand the sum of Rs. 1,00,000 (RUPEES ONE LAKH ONLY) with interest at rate of 5% p.a. From the date of the value received in cash/cheque no._____ dated _______.
Following are the parties to a promissory note:
As per Section 5 of the Act, a “bill of exchange” (BOE) is considered to be a type of negotiable instrument that is made in writing consisting of an order which is unconditional, signed by the maker of that instrument, and directs a particular person to pay a certain amount of money only to or to the order of a certain person or to any bearer of that instrument.
The essence of a BOE lies in the fact that it is drawn by a creditor upon his debtor making him pay the amount of money to the person whose name is specified in the instrument.
BILL OF EXCHANGE
90 days after the date, pay Mr. X, or order a sum of RUPEES SIXTY THOUSAND ONLY for the value received.
ACCEPTED STAMP SIGN OF MAKER
(Drawee’s name) (Drawer’s name)
(Drawee’s address) (Drawer’s address)
The following are the parties to a bill of exchange:
Bills of exchange are further classified into the following categories on the basis of their usage and jurisdiction of their enforcement:
| Parameters | Promissory Note | Bill of Exchange |
| Parties to the instrument | Mainly 2 parties; the debtor and the creditor | Mainly three parties: the drawer, the drawee, and the payee |
| Payment to the maker | Cannot be made payable to the maker itself | The drawer and the payee of the bill can be the same person |
| Unconditional promise/order | Promissory note contains an unconditional promise to pay | A bill of exchange contains an unconditional order to pay |
| Acceptance of the instrument | Maker need not give a prior acceptance in order to make the note payable | In order to make a bill payable, the drawee needs to accept it himself or by any other person on his behalf |
| Liability | Maker of pro note vests with the primary ability | The liability of the drawer of a bill of exchange is secondary and conditional |
| Relation | The maker of a pro note and the payee stay in an immediate relation | The drawer of a BOE stands in an immediate relation with the drawee and not with the payee |
As per Section 6 of the NI Act, 1881, the cheque is defined as “a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand and it includes the electronic image of a truncated cheque and a cheque in the electronic form”.
As per Section 6, a cheque includes a cheque in the electronic form and also a truncated cheque. Let us understand these in brief.
As per Explanation I, a truncated cheque is the one that is cut short in the clearance cycle. This means that rather than using the cheque in a physical capacity, a scanned copy or the electronic image of the same is used for the transmission of the payment.
Such a type of cheque is the one that is digitally signed by the maker and is drawn by a secure digital cryptosystem.
There are three main parties to cheque. They are:
In the case of Surendra Madhavrao Nighojakar vs. Ashok Yeshwant Badave (2001), the Supreme Court of India held the following:
The Hon’ble Supreme Court of India explained the distinction between a cheque and a post-dated cheque with reference to Sections 5 and 6 of the Negotiable Instruments Act, 1881, in the case of Anil Kumar Sawhney vs. Gulshan Rai (1993). According to the Supreme Court’s ruling:
A cheque is classified into various types which are mentioned below:
As per Section 8 of the Act, every instrument initially belongs to the payee of that instrument because he has the right to its possession. However, the payee has the authority to transfer that instrument to any other person in order to pay his debt and such transfer is called negotiation. Therefore, it can be said that the holder of an instrument is either the bearer of the instrument or the endorsee.
As per Section 9 of the Act, a holder in due course is the one who for consideration and in good faith becomes the possessor of a negotiable instrument even before the amount stated on that instrument becomes payable. It is pertinent to note that a holder in due course must have obtained the instrument prior to the lapse of maturity of that instrument and he should not have any notice of defect in the instrument. A person who has obtained a negotiable instrument in conformity with good faith and for value is referred to as a “holder in due process.” Each negotiable instrument holder is considered to be a “holder in due course.” It is the responsibility of a party liable for repayment to prove that the person holding the negotiable instrument isn’t the rightful owner in the event of a dispute.
In any case, the onus is on the holder to prove that he is a holder in due course, for instance by proving that he obtained the negotiable instrument in accordance with some good faith and for value, if the parties obligated for repayment demonstrate that the negotiable instrument was obtained from its legitimate proprietor by means of a crime or extortion. In law, the “burden of proof” is the requirement to establish specific facts.
Section 15 of the NI Act, 1881 clarifies as to what amounts to indorsement. When “the maker or holder signs the instrument otherwise than as a maker for the purpose of negotiation either on the back of it or on the face of it or on a slip annexed to it, then the instrument is said to have been endorsed”.
As per the provisions of the NI Act, 1881, indorsement of an instrument can be done in four ways:
Following are the legal effects of negotiating an instrument by way of endorsement:
In the case of A.V. Murthy vs. B.S. Nagabasavanna (2002), it was determined that a negotiable instrument is presumptively drawn for consideration and that a complaint of a dishonoured cheque at the threshold may be dismissed on the grounds that money had been advanced four years prior, the debt is not enforceable, and such a course of action is improper.
Before getting to know about the types of negotiable instruments, it is important to know who can be a party to a negotiable instrument. As per Chapter III of the Act, any person who is capable of contracting as per the Indian Contract Act, 1872, is eligible to become party to a negotiable instrument.
The liability of the parties to a negotiable instrument under Chapter III has been mentioned under Sections 30 to 32 and further under Sections 35 to 42.
Section 28: A promissory note, bill of exchange, or cheque that an agent sign without specifying that he is acting as an agent or that he does not intend to assume personal liability makes the agent personally liable for the instrument, with the exception of those who persuaded him to sign under the impression that only the principal would be held responsible.
Section 29: A promissory note, bill of exchange, or cheque that a legal representative of a deceased person signs binds him personally unless he expressly restricts his duty to the amount of assets he received in that capacity.
Section 30: If the drawee or acceptor of a bill of exchange or cheque dishonoured it, the drawer is obligated to pay the holder compensation, provided that the drawer has received or been given the proper notice of the dishonour as described further below.
Section 31: The drawee of a cheque must pay the cheque when required to do so and, in the event that payment is not made as required, must reimburse the drawer for any losses or damages resulting from the default. This is true even if the drawee has sufficient funds in his possession that are legally applicable to the payment of the cheque.
Section 32: The maker of a promissory note and the acceptor of a bill of exchange prior to maturity are obligated to pay the amount due at maturity in accordance with the apparent tenor of the note or acceptance, respectively, in the absence of a contract to the contrary, and the acceptor of a bill of exchange at or after maturity is obligated to pay the amount due to the holder upon demand. Any party to the note or bill who is not paid as required by the note or bill must be reimbursed by the maker or acceptor for any losses or damages they suffer as a result of the default.
Section 35: Section 35, outlines the obligations of an endorser. In the case that the instrument is dishonoured, the endorser of a negotiable instrument undertakes the duty to the holder and any subsequent endorsers, unless there is a contrary arrangement. Significantly, the endorser’s liability will be secondary and arise only if the instrument is dishonoured after the proper procedures have been followed. Every indorser who does dishonour is accountable as if they were a demand-payable instrument.
Section 40 talks about the discharge of the indorser’s liability. The indorser is released from responsibility to the holder to the same extent as if the instrument had been paid in full when the holder of a negotiable instrument destroys or weakens the indorser’s remedy against a preceding party without the indorser’s consent.
Section 36: Every prior party to a negotiable instrument is liable thereon to a holder in due course until the instrument is duly satisfied.
Chapter VII of the Act deals with the concept of discharge from the liability of the parties. These parties include either the maker of the instrument, the acceptor, or the endorser. When a party is discharged from liability over a particular instrument, in such a case, only that party gets discharged but the instrument continues to be negotiable and all the other undischarged parties will be liable on that instrument.
As mentioned above, Chapter VII not only deals with the concept of discharge from liability but also its various modes. Let us understand all the modes of discharge from liability of parties in brief.
As per Section 82(c), when a party is to be discharged from liability by the mode of payment, it needs to clear the payment in the due course of that payment. This means that the payment is to be made as per the terms and conditions and in accordance with good faith.
As per Section 79, the term “payment” is inclusive of the principal amount of the instrument along with the interest if any. Such interest if not mentioned while making the instrument remains 18% in accordance with the provisions mentioned under Section 80 of the Act.
As per Section 82(a), the maker, holder, or endorser is discharged from liability when such party cancels the name of the acceptor of the instrument. This results in the discharge of the liability of the maker, holder, or endorser against the person whose name is cancelled upon the instrument.
In accordance with Section 82(b), when the maker, holder, or endorser of an instrument gives notice of discharge to the party against whom the liability is to be discharged, the holder gets discharged from all such liabilities thereafter.
A cheque is considered to be crossed when the maker of the cheque draws two parallel transverse lines across the face of the cheque. In the usual instance, these lines are drawn on the upper-left corner of the cheque. Payment of a cheque is usually affected by the crossing of a cheque. The word “crossing of a cheque” is nothing but a sort of direction to pay the money at the hands of the paying banker. Chapter XIV deals with the crossing of cheques.
A cheque is crossed to ensure that the payment is obtained only by the rightful holder of that cheque and not otherwise. When a cheque is crossed generally, the banker gets the rightful authority to obtain the payment. Crossing of cheques ensures that even in incidents of wrongful delivery of payments, the maker can trace back the transaction through the banker.
Following parties to a cheque may cross it:
There are various modes of crossing a cheque as explained below:
As per Section 123, when there remains no words between the lines of crossing or the name of the bank alongside the words if any, the cheque is said to be crossed generally. The maker of the cheque has the discretion to add the words “not negotiable” upon the cheque.
As per Section 124 of the Act, when there remains the name of the banker between the transverse lines, the cheque is said to be crossed specially. In such a case, the payment of the cheque can only be made through a specific banker whose name is mentioned between the lines of crossing.
As per Section 130 of the Act, a cheque is said to be crossed as “not-negotiable” when the word “not-negotiable” is mentioned between the transverse lines on the cheque. Such type of crossing restricts the instrument from being negotiated any further. When a cheque is crossed as “not-negotiable”, the maker becomes ineligible for any authority to pass on any title which he is devoid of.
The criminal penalties found in Sections 138 to 148 of the 1881 Act have been put in place to make sure that contracts entered into using cheques as a form of deferred payment are upheld. Conditions for filing a complaint for cheque dishonour are outlined in Section 138 of the Act. The following are the components needed to comply with Section 138:
A negotiable instrument may occasionally be dishonoured, which means the party responsible for payment neglects to make the payment. After submitting the proper notice of dishonour, the holder has the right to file a lawsuit for the recovery of the sum. However, he is allowed to have a Notary Public’s certification about the actuality of dishonour before he files the lawsuit. A statement like that is referred to as “protest.” The court will assume that there has been dishonour based on the verification of such dissent.
The “Negotiable Instruments Act” was first developed in 1866, and it was finally passed into law in 1881. Chapter XVII, which includes sections 138 to 142, was added to this statute in 1988, after more than a century. Section 138 of the Act essentially lays out the punishment for the crime of dishonouring a cheque. “A negotiable document drawn on a designated banker and not expressed to be payable otherwise on demand” is how one may define a cheque under the Section. The word “cheque” is defined in Section 6 of Chapter II of the Negotiable Instruments Act, 1881 to include “an electronic image of a truncated cheque and a cheque in electronic form.” Before the recent addition, criminal prosecution of the accused in cases of cheque dishonour was not an option for the payee of the cheque; instead, only civil and alternative dispute resolution procedures were available. Now, the payee of the cheque has access to both civil and criminal remedies.
The Hon’ble Court stated in Modi Cement Limited vs. Kuchil Kumar Nandi (1998), that the major goal of Section 138 of the Negotiable Instrument Act, 1881 is to increase the effectiveness of banking operations and to guarantee complete trust while conducting business using cheques. The laws of the commercial world, which are specifically designed to simplify trade and commerce by making provisions for giving sanctity to the instruments of credit that would be deemed to be convertible into money and easily transferable from one to another, are those that deal with negotiable instruments.
In the most recent decision of P Mohanraj vs. M/S. Shah Brothers Ispat Pvt. Ltd. (2021), a division bench composed of Rohinton Fali Nariman, and B.R. Gavai rendered their decision that when discussing whether Section 14 of the Insolvency and Bankruptcy Code, 2016 prohibits proceedings under Section 138 of the Negotiable Instrument Act, 1881, against corporate debtors, it was noted that the proceedings under Section 138 could be described as “civil sheep” in “criminal wolf’s clothing.”
The term “Negotiable Instrument” is defined as “a promissory note, bills of exchange, or cheque payable either to order or to bearer” under Section 13 of the Negotiable Instrument Act, 1881. In other words, it basically says that “it is a sort of instrument which promises the bearer a sum of money that will be payable on demand or at any future date.” Section 138 essentially outlines the penalties for dishonouring a cheque as a criminal provision.
The provision itself outlines specific conditions that render dishonouring a cheque illegal, and the prerequisites are:
The court ruled in the case of Shankar Finance Investment vs. State of Andhra Pradesh (2008) and others that “Section 142 of the Negotiable Instrument Act makes it compulsory that the complaint must be filed by the payee or holder in due course of the cheque where a Payee is a natural person he can file a complaint and when the pay is a form of a company registered person it must be represented by a natural person.”
The decriminalisation of minor offices was announced in a public notice released by the Minister of Finance in the year 2020 with the goal of boosting business confidence and streamlining the legal system. for gathering feedback and proposals from interested parties about the decriminalisation of a variety of offences, including the offence under Section 138 of the Negotiable Instruments Act of 1881.
The primary goal of the government’s proposal is to streamline business procedures and promote investment, but in a reasonable opinion, doing away with Section 138’s criminal penalties will not achieve this goal. Instead, it can be believed that this section was designed to have deterrent effects and to prevent people from breaking their agreements by paying by cheque.
Another goal of this proposal was to decriminalise certain offences in order to open up the legal system. However, this goal will not be achieved because there are already a lot of pending cases in the magistrate courts, and they are being resolved very slowly. Additionally, by decriminalising certain offences, the burden that was previously placed on the criminal courts will be transferred to the civil courts because the person who holds the cheque will now bear that burden.
Section 142 of the NI Act, 1881 talks about the cognizance of offence mentioned under Section 138. According to Section 142(1)(a), a court can only take cognizance for an offence under Section 138 on the written complaint of the payee of the cheque or the holder in due course whatever the case may be.
It is pertinent to note that as per Section 142(1)(b), the complaint of the dishonour of the cheque must be made within one month from the cause of action of the offence mentioned under Section 138. However, the court may take cognizance post the limitation time if the payee or the holder in due course satisfies the court that there was a sufficient reason for not making the complaint in the requisite time period.
As per Section 142(1)(c), the court of a Metropolitan Magistrate or Judicial Magistrate first class is authorised to take cognizance of the offence mentioned under Section 138.
As per Section 142(2), an offence under Section 138 may be tried in the following jurisdictions:
As per Section 140 of the Act, the defence that the cheque presented may get dishonoured on presentment cannot be taken by the drawer of the cheque. However, the following defences may be considered by the court:
In accordance with Section 143 of the Act, the offences under Chapter XVII are to be dealt with summarily as per Sections 262–265 of the Code of Criminal Procedure, 1973 for which the sentence passed by the magistrate must not exceed a term of one year and a fine for an amount of not exceeding 5000 rupees.
As per Section 143(3), every trial conducted by the magistrate under this provision must be concluded within a time span of 6 months from the date of filing of the complaint.
The Delhi High Court considered the issue of whether a criminally compoundable offence under Section 138 might be resolved by mediation in the case of Dayawati vs. Yogesh Kumar Gosain (2017). The Court ruled that even while the legislature did not clearly provide for such a provision, the criminal court is still permitted to send both the complainant and the accused to alternative conflict resolution procedures. Without mandating or limiting the method by which it may be reached, the Code of Criminal Procedure, 1973, does permit and accept a settlement. Therefore, there is no prohibition against using alternative dispute resolution procedures, such as arbitration, mediation, and conciliation (recognised under Section 89 of the Civil Procedure Code, 1908), to resolve disputes that are the focus of offences covered by Section 320 of the Code of Criminal Procedure Code. Additionally, it was argued that the proceedings under Section 138 of the 1881 Act are unique from other criminal cases and really have more in common with a civil wrong that has been given criminal undertones.
After considering the purpose of enacting Section 138 and other sections of Chapter XVII of the Act, the Honourable Supreme Court stated in Meters and Instruments (P) Ltd. vs. Kanchan Mehta (2017) that an offence under Section 138 of the Act is principally a civil wrong. Section 139 places the burden of proof on the accused, but the standard for such proof is “preponderance of probabilities.” The case must typically be tried summarily in accordance with the provisions of summary trial under the CrPC, with any modifications necessary for proceedings under Chapter XVII of the Act.
As written, Section 258 of the CrPC principle will be in effect, and the Court may close the case and release the accused if it is satisfied that the amount on the cheque, as well as any assessed costs and interest, have been paid and if there is no justification for continuing with the punitive element. Compounding at the initial stage must be encouraged but is not prohibited at a later stage, subject to appropriate compensation as may be found acceptable by the parties or the Court. The purpose of the provision is primarily compensatory, the punitive element being primarily with the object of enforcing the compensatory element.
Cases brought under Chapter XVII of the Act must typically be tried in a summary manner. It is pertinent to note that the court having jurisdiction under Section 357(3) CrPC to try the case can also grant suitable compensation in addition to the sentence of imprisonment under Section 64 of the Indian Penal Code, 1860, and with further recovery powers under Section 431 of the CrPC. The Magistrate may decide, under the second proviso to Section 143 of the Indian Penal Code, 1860, that it was undesirable to try the case summarily because a sentence of more than one year may need to be passed. With this strategy, a prison term of more than a year may not be necessary in every circumstance.
The bank’s slip is prima facie proof of the dishonoured cheque, so the Magistrate need not record any additional preliminary evidence. The complaint’s evidence can be provided on affidavit, subject to the court’s ruling and scrutinising the individual providing the affidavit. This type of affidavit testimony is admissible at all stages of a trial or other action.
Thus, the plan is to proceed in a summary manner.
As per Section 139, the court shall presume that the cheque issued in the favour of the holder was in discharge of the liability whether in part or in full.
As per Section 141, even a company can be held liable for an offence committed under Section 138. In such cases where the company commits an offence under Section 138 of the Act, the person in charge responsible for the company’s affairs at the time of the commission of the offence along with the company will be held liable and will be prosecuted against. Also, it is to note that the defence of due diligence and good faith cannot be taken in such cases where a company is accused of committing an offence under Section 138.
However, no proceeding can be exercised against the Director of a company employed by the Central Government or a State Government.
According to this Section 144, a copy of the summons must be duly served upon the accused or the witness where they reside or work for gain.
Section 145 denotes that the evidence of the complainant is given on affidavit and the court has the authority to summon and examine the person giving evidence on affidavit.
According to this Section 147, all the offences under this Act shall be compoundable within the meaning of the provisions of CrPC.
The Negotiable Instruments (Amendment) Act, 2018 which came into force on 1st September, 2018 inserted two important provisions to chapter XVII of the Act. Sections 143A and Section 148 were inserted by the Amendment Act.
According to Section 143A, the court while trying an offence mentioned under Section 138 can also grant interim compensation to the complainant which must not exceed 20% of the cheque’s amount. Also, as per Sub-section (3) of Section 143A, such compensation must be paid within a time frame of sixty days further extendable to thirty days from the date of such order.
As per Sub-section 5, such compensation must be received as a fine in accordance with Section 421 of CrPC.
Section 148 denotes the power of the Appellate Court to order payment. As per this provision, the Appellant Court may order the appellant to deposit the sum of conviction for which the appeal has been preferred which would be 20% interest of the fine or compensation. However, such an amount would be in addition to the amount of compensation granted under Section 143A.
As per Sub-section (2), such an amount must be deposited within a time frame of 60 days further extendable to 30 days on sufficient cause.
Chapter XVIII of the Act deals with the provisions concerning notice of dishonour of a negotiable instrument. The following are the provisions mentioned in this chapter:
According to Section 99 of the Act, when an instrument gets dishonoured due to non-acceptance or non-payment, such dishonour may be called to be noted by the notary public upon that paper or any other affixed paper.
As per Section 100, when such noting is certified by the notary public, that certificate is considered to be a protest.
Chapter X deals with the head of reasonable time. The important provisions in this chapter are dealt with as follows:
Chapter XVI covers the provisions relating to international law in resonance with the negotiable instruments. As per Section 134 of the Act, a foreign negotiable instrument would be governed by the laws of the land where that instrument is made. However, this is not the case when a foreign instrument is dishonoured. As per Section 135, when the place of the making of the instrument is different from where it is made payable and such instrument gets dishonoured, the law of the place where it was to be made payable would apply.
According to Section 137, unless the contrary is proved, the laws of the foreign land where an instrument is made would be considered similar to the Indian laws governing the negotiable instruments.
It is assumed that a notice has been served if it has been sent by registered mail to the right address of the cheque’s drawer. The drawer, however, has the right to refute this assumption.
The Apex Court has ruled that a notice is considered to have been properly served if it is delivered to the correct address and returned with the words “refused,” “no one was home,” “house was locked,” or words to that effect.
Despite the fact that the Act makes no reference of the stamp’s relevance or requirement, every style of promissory note and bill of exchange must have a stamp on it. The Indian Stamp Act of 1899 mentions a mandatory provision for stamp affixation on such documents.
According to Section 101 of the Indian Evidence Act, 1872, the plaintiff has the initial burden of proving a prima facie case in his favour. Once the plaintiff presents evidence to support a prima facie case in his favour, the defendant is then required to present evidence to the court of law that supports the plaintiff’s case. The burden of proof may return to the plaintiff as the case develops. The following presumptions shall be made unless the contrary is shown, according to Section 118 of the Negotiable Instruments Act of 1881:
The Negotiable Instruments Act of 1881 mandates that when a promissory note or bill of exchange has been dishonoured by non-acceptance or non-payment, the holder of such instrument may cause such dishonour to be noted by a notary public upon the instrument or upon a paper annexed (or attached) thereto, or partly upon each of them, i.e., the instrument and the paper annexed to the instrument. Additionally, according to Section 100 of the Negotiable Instruments Act of 1881, the holder of an instrument may have it protested by a notary public within a reasonable amount of time regarding the dishonour of the instrument.
Following Chinnaswamy vs. Perumal (1999), it was held that the assumption under Section 118 of the Negotiable Instruments Act, 1881, had been refuted by the facts in the case of Ayyakannu Gounder vs. Virudhambal Ammal (2004). In Bonala Raju vs. Sreenivasulu (2006) it was decided that the presumption as to consideration under Section 118 of the Negotiable Instruments Act, 1881, applies when the fulfilment of a promissory note is proven.
According to Section 119 of the Negotiable Instruments Act of 1881, the presumption of proof of protest is discussed. It specifies that if a lawsuit is filed over the nonpayment of a promissory note or a bill of exchange, the court will presume that the nonpayment occurred unless and until the acceptor of the promissory note or bill of exchange refutes (or refutes) the claim.
According to the 213th Law Commission Report, the Indian judicial system is dealing with a significant backlog of cases, and roughly 20% of the litigation-related issues include cheque bounces. The lifeless sections of the Negotiable Instruments Act of 1881 would thus be given some life by the recently enacted provisions. Even though cases involving cheque bounces are penal in nature and result in criminal offences, the procedures for summary judgement are still on the books, and making the offence subject to bail has made these cases practically identical to civil issues. In this approach, newly introduced restrictions would in fact be a proactive measure to protect the legitimacy of cheques. Once the accused individuals or the appellant, if there is an appeal, deposit a sizable sum, they will begin to treat the situation seriously. Even while it is moving in the right way, there is still work to be done to make cheque bounce cases feasible, and summary trials must be given their actual meaning. Otherwise, the entire point of making a cheque bounce a criminal offence would become less significant.
Apart from the significance of NI Act, 1881 in the cheque bounce matters, it is considered a substantial piece of legislation because of its governance over the various negotiable instruments in the Indian territory. It is a comprehensive legal framework of provisions which deals with every aspect of the negotiable instruments ranging from their creation to their enforcement. It highlights the rights and liabilities of the parties and provides for an efficient mechanism of the disputes pertaining to negotiable instruments.
According to Section 138, any person accused of dishonour of a cheque due to insufficiency of balance in his bank account will be held liable for the offence mentioned under this Section and will be sentenced to imprisonment of a term not exceeding two years or with a fine which would not exceed twice the amount of the cheque.
Inland instruments are the ones that are either payable in India or drawn upon a person who is a resident of India whereas foreign instruments are the ones that are not considered as inland instruments. This also implies that such type of instrument shall be either payable or drawn upon a person who is not a resident of India or such type of instrument is drawn and made payable outside India.
Section 143A which talks about interim compensation was inserted into the Act of 1881 by the Negotiable Instruments (Amendment) Act, 2018 on 1st September, 2018.
The payee or the holder in due course upon the dishonour of the cheque can also file for a claim of interim compensation from the drawer of the cheque. This compensation is treated as a fine as per the provisions of CrPC.
As per Section 142, the Judicial Magistrate First Class or the court of Metropolitan Magistrate has the authority to take cognizance of an offence under Section 138.
