Section 138 of Negotiable Instruments

Some legal aspects of section 138 of Negotiable instruments Act

The litigation arising out of section 138 of the negotiable instruments Act is increasing at a steady pace. This is because the legislature has made it a criminal offense that a person who pays by cheque should have an excuse of not paying because the cheque given by him was bounced. Section 138 Lawyers in Chandigarh are aware that the law relating to section 138 is very strict. Cases under section 138 are also called cheque bounce cases.

The limited sphere within which section 138 operates cannot be equated with money lending activities concerned with many lenders. It is not therefore ultra vires the powers of the Parliament. Section 138 has created a contractual breach is an offense and the legislative purpose is to promote efficacy of banking and of ensuring that commercial or contractual transactions cheques are not dishonored and credibility in transacting business through cheques is maintained. For establishing the requirements in section 138, there is no burden on the part of the complainant to prove before the court entire details of the transaction resulting in issuance of cheque.

The objectives of the proceedings under section 138 are that cheques should not be used by persons as a tool of dishonesty and when a cheque is issued by a person it must be honored and if not honored that the person is given opportunity to pay the cheque out by issuance of notices and if you still does not pay he must face criminal trial and consequences.

Cheque bounce lawyers in Chandigarh district court argue that the foundation of liability under section 138 is the issue of the cheque for the consideration and not for the existence of the original concentration. The significance and efficacy of section 138 will be lost if courts were to insist on the proof of original transaction.

Section 138 contains a penal provision. It has been argued by lawyers in Chandigarh High Court that section 138 is a special statute which creates vicarious liability, and Punjab . Chandigarh has held that the burden of proof to some extent is on accused person. Punjab High Court has also held that having regard to purport of the said provision and also in view of the fact that it provides a severe penalty, the provision warrants a state construction High Court Chandigarh has held that section 138 is charging section creating criminal liability in case of dishonor of a cheque.

The lawyers in Chandigarh who practice in Punjab and Haryana High Court have argued successfully that criminal liability which the legislator introduces to section 138 is based on principle of strict liability and the legislature's intention in enacting the said provision cannot be defeated on technical grounds unless prejudice is shown to have been caused to the accused.

The offense under section 138 is punishable with substantive sentence or fine or with both that is offense is punishable with fine also.

Punjab and High Court Chandigarh has held that section 138 of the negotiable instruments Act is a substantive provision. But, once prosecution is to be launched same will be done under procedural law laid down by Criminal Procedure Code.  Apart from civil liability, criminal liability sought to be imposed by the said provision on such unscrupulous drawers of cheque. Therefore while construing the provision, the object of legislation has to be borne in mind. Section 138 does not confine its operation to the cases where cheque had been issued by a person in favor of the other in discharge of his own personal debt or other liability, but it is also attracted in relation to cheque issued by a person to another for discharge of any debt or other liability.

High Court Chandigarh has also held that the offense under section 138 of the Act could not be said to be an offense against the society at large and therefore it will not amount to an economic offense. Further Punjab and Haryana High Court at Chandigarh has held that the offense of issuing a cheque without sufficient funds does not involve any element of moral turpitude and is basically breach of promise to repay, offense under section 138 of negotiable instruments Act is deemed offense. This means that when a cheque is drawn by a person and is returned unpaid by the bank for the reasons mentioned in the provision, such person shall be deemed to have committed an offense. The use of words ”such person” would clearly indicate that the person who had drawn the cheque is the person who commits the offense.

With the actual transactions between the parties took place prior to the coming into force of the Act but cheques were issued after coming into force of the act, criminal complaint under section 138 filed through a lawyer in Chandigarh would be maintainable as the date of issuing the cheque is relevant and not dictate of transaction.

In one of the cases relating to section 138 of the negotiable instruments that it has been held that an arbitration clause does not cover a criminal offense and therefore section 34 of the arbitration Act is not attracted to criminal prosecution initiated through a lawyer in Chandigarh under section 138.

Punjab and Haryana High Court Chandigarh has also held that section 320 sub clause nine of the Criminal Procedure Code does not play any part or prohibition against compounding of offenses under other laws. When read with section 147 of the Act, the offense punishable under section 138 of the negotiable instruments Act is compoundable offense.

In a case where the first accused was merely the owner of a business concern and his son had given the cheque to discharge liability of his father, in such case the second accused would be the drawer of the check and therefore the criminal liability under section 138 of negotiable instruments Act cannot be fastened on the owner of the business concern/father.

In another case where civil suit was pending between the parties regarding the amount covered by the cheques and the proceedings in the criminal complaint were almost at a final stage, it was held that it was not appropriate for Punjab and Haryana High Court at Chandigarh to start criminal proceedings when the disposal of the suit was likely to take time.