25 Feb 2010

No criminal liability for post dated cheque bounce: High Court

In a recent decision the Bombay High Court, taking a literal view of the statutory provisions, has declared that a person is not liable under the Negotiable Instruments Act for bouncing of cheques if the liability is alleged on account of post-dated cheques given by such person. The High Court was dealing with the validity of the acquittal order passed by the Magistrate where it was alleged by the Co-operative society which had extended a loan that the person had given post-dated cheques as security for the loan taken which had bounced for insufficiency of funds. 

The High Court, agreeing with the acquittal order passed by the Magistrate, observed as under;

14. Thus the object of the amendment and introduction of Chapter XVII in the Negotiable Instruments Act by Act of 1988 was mainly to encourage all major transactions including commercial or business transactions through cheques and to enforce credibility and acceptability of cheques in settlement of liability in general. Encouragement of payment by cheques/credit cards/debit cards rather than by cash is necessary for healthy economy. That also brings in transparency in transactions and discourages creation of black or unaccounted money through evasion of taxes or other malpractices. So, provisions like Section 138 of Negotiable Instruments Act are salutary to give reliability, credibility and acceptability of negotiable instruments like cheques in daily life. However, the object was not to provide effective and speedy remedy for recovery of loans. Law makers must not have intended or imagined that money lenders or banks would obtain blank or post dated cheques while sanctioning/disbursing loans as securities and would use them to make debtors/borrowers to repay loan under threat of prosecution and punishment under Section 138 of the Negotiable Instruments Act. So, it is doubtful if provisions of Section 138 of the Negotiable Instruments Act would be attracted to a case in which a blank or post dated cheque is obtained by a bank or money lender before or while sanctioning or disbursing loan amount as security for the loan.
21. In the present case blank cheques were issued prior to disbursement of loan as a collateral security for loan which was sanctioned. In such case there was no existing debt or liability when the cheque is issued. So, in the facts and circumstances of the case, the case does not fall within four corners of offence punishable under section 138 of the Negotiable Instruments Act. Of course such defence is available against payee and not holder in due course.


ஜ.ராதாக்ருஷ்ணன். said...

The Judgment of the Bombay High Court does not appear to lay down the correct legal position regarding post dated cheques. The action for dishonour of a cheque comes into play only when it is dishonoured and not on account of the date it was drawn or issued. If the cheque was given or intended for discharge of liability which has admittedly been incurred on the date it was given, its dishonour attracts Sec.138 of the N.I.Act. The actual date when it was issued becomes irrelevant. Further Sec.20 of the N.I.Act gives liberty to the payee to fill up the blanks and such blanks are filled up for covering an existing liability as on the date it bears, its dishonour would certainly attract Sec.138 of the N.I.Act.

Ajit A.K. said...

The title ought to have been 'No criminal liability for security cheques'
post dated cheques are still valid.