DISHONOUR OF

CHEQUES
A cheque is 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. (Sec. 6 Negotiable Instruments Act)

A "negotiable instrument" means a promissory note, bill of
exchange or cheque payable either to order or to bearer.

A bill of exchange is an instrument in writing containing an
unconditional order, signed by the maker, directing a certain person to
pay a certain sum of money only to, or to the order of, a certain person
or to the bearer of the instrument. (Sec. 5 Negotiable Instruments Act)

CHEQUE
The maker of a Cheque is called the drawer; the person
thereby directed to pay is called the Drawee.

The holder of a cheque means any person entitled in his
own name to the possession thereof and to receive or recover
the amount due thereon from the parties thereto.

The cheque should be presented to the bank within a period
of 6 months from the date on which it is drawn or within the
period of its validity, whichever is earlier (Sec. 138 Negotiable
Instruments Act)

MORE ABOUT CHEQUES
The essential requisites of a cheque are:
Instrument should be in writing
It should contain an unconditional order
Instrument must be drawn on a specified banker
The order must be for the payment of a certain sum of money only
Name of the payee must be mentioned
Date
Essential features of a Cheque:
It is transferrable.
Holder in Due Course gets a valid title to it despite any defect in the
transferors title. {exception to the general rule of law : nemo dat quod non
habet- No one can transfer a better title than he himself posses}
It has the right of action infused in itself.
REQUISITES AND FEATURES OF
CHEQUE
Where any cheque drawn by a person on an
account maintained by him with a banker for payment of any amount
of money to another person from out of that account for the
discharge, in whole or in part, of any debt or other liability, is returned
by the bank unpaid, either because of the amount of money standing
to the credit of that account is insufficient to honour the cheque or
that it exceeds the amount arranged to be paid from that account by
an agreement made with that bank, such person shall be deemed
to have committed an offence and shall, without prejudice to any
other provision of this Act, be punished with imprisonment for a term
which may extend to two years, or with fine which may extend to twice
the amount of the cheque, or with both:
DISHONOR OF CHEQUES
Provided that nothing contained in this section shall apply unless-
a) the cheque has been, presented to the bank within a period of six
months from the date on which it is drawn or within the period of
its validity, whichever is earlier;
b) the payee or the holder in due course. of the cheque as the case may
be, makes a demand for the payment of the said amount of money
by giving a notice, in writing, to
the drawer of the cheque, within thirty days of the receipt of
information by him from the bank regarding the return of the cheque
as unpaid; and
c) The drawer of such cheque fails to make the payment of the said
amount of money to the payee or, as the case may be, to the holder in
due course of the cheque, within fifteen days of the receipt of the
said notice.
CONTINUED:
The cheque should have been issued for the discharge , in
whole or part, of any debt or other liability.(legally enforcible
debt or liabilit)
The cheque should have been presented within a period of six
months or within its validity period whichever is
earlier.(limitation clause)
The payee or holder in due course should have issued a notice
in writing to the drawer within 30 days of the receipt of
information by him from the Bank regarding the return of the
cheque as unpaid.
After receipt of the said notice from the holder in due course,
the drawer should have failed to pay the cheque within 15 days
of receipt of the said notice.
INGREDIENTS OF OFFENCE
UNDER SECTION 138
GROUNDS FOR DISHONOUR OF
CHEQUE

The amount of money standing to the credit of the account
of the drawer on which the cheque is drawn is insufficient to
honour the cheque, or
The cheque amount exceeds the amount that can be paid by
the bank under an arrangement entered into between the bank
and the drawer of the cheque.
FUNDS INSUFFICIENT
Account Closed: In the case of NEPS MICON LTD. AND
OTHERS VS. MAGMA LEASING LTD,SC held that It is
an offence under section 138 of the Act Closure of account
would be an eventuality after the entire amount in the account
is withdrawn It means that there was no amount in the
credit of that account on the relevant date when the cheque
was presented for honouring the same.

Stop Payment instructions: In MAHENDR S. DADIA VS.
STATE OF MAHARASHTRA, It was held that: Once the
cheque has been drawn and issued to the payee and the payee
has presented the cheque, stop payment instructions will
amount to dishonour of cheque.
Not a clearing member: Cheque returned with
endorsement not a clearing member. To attract the
provisions of section 138 NI Act, the cheque should
be presented with the bank on which it is drawn- If
the cheque is not presented to the bank on which it is
drawn, then provisions of sec 138 would not be
attracted. If bank on which the cheque is drawn is
not a clearing member of the Reserve Bank of India
unpaid return of the cheque would not attract
section 138.
If the person committing an offence under section 138 is a
company, every person who, at the time the offence was
committed, was in charge of, and was responsible to the
company for the conduct of the business of the company, as
well as the company, shall be deemed to be guilty of the offence
and shall be liable to be proceeded against and punished
accordingly: Provided that nothing contained in this sub-section
shall render any person liable to punishment if he proves that the
offence was committed without his knowledge, or that he had
exercised all due diligence to prevent the commission of such
offence (Sub Sec. 1, Section 141 Negotiable Instruments Act )
OFFENCES BY COMPANIES
Provided further that where a person is nominated as a Director of
a company by virtue of his holding any office or employment in the
Central Government or State Government or a financial
corporation owned or controlled by the Central Government or the
State Government, as the case may be, he shall not be liable for
prosecution under this Chapter.

Notwithstanding anything contained in sub-section (1), where any
offence under this Act has been committed by a company and it is
proved that the offence has been committed with the consent or
connivance of, or is attribute to, any neglect on the part of, any
director, Manager, secretary, or other office of the company, such
director, manager, secretary or other officer shall also be deemed to
be guilty of that offence and shall be liable to be proceeded against
and punished accordingly. (Sub Sec. 2, Section 141 Negotiable
Instruments Act )
In State of Haryana v. Brij Lal Mittal and others 1998 (5) SCC
343. It was held that vicarious liability of a person for being
prosecuted for an offence committed under the Act by a company
arises if at the material time he was in charge of and was also
responsible to the company for the conduct of its business. Simply
because a person is a director of a company, it does not necessarily
mean that he fulfils requirements of s 141 of the act so as to
make him liable.
THANK YOU