CHAPTER I: THEORETICAL BACKGROUND

Introduction: The law relating to negotiable instruments is not the law of one country or of one nation, it is the law of the commercial world in general, for, it consists of certain principles of equity and usages of trade which general convenience and commonsense of justice had established to regulate the dealing of merchants and mariners in all the commercial countries of the civilized world. Even now the laws of several countries in Europe are, at least so far as general principles are concerned, similar in many respects. Of course, on questions of detail, different countries have solved the various problems in different ways, but the essentials are the same, and this similarity of law is a pre-requisite for the vast international transactions that are carried on among the different countries.[footnoteRef:1] [1: The Negotiable Instrument Act- Bhashya & Adiga, 13th Ed. p. 1 ]

The Negotiable Instruments Act, 1881 was basically introduced to define the law relating to the various aspects of the different negotiable instruments like Promissory Notes, Bills of Exchange and Cheques. But the increasing use of these negotiable instruments necessitated the introduction of a number of amendments in the Negotiable Instruments Act with the main aim of making the use of the negotiable instruments easy. Amongst all the amendments made in the Negotiable Instruments Act the amendment responsible for the insertion of the Chapter XVII into the Actcan be considered to be the most important one as it helped in bringing about a revolutionary change with respect to the use of cheques. Prior to this amendment the scope of misuse of the power to issue cheques was on a rise in spite of the available civil remedy and the criminal remedy under Sec 420 of the Indian Penal Code. And the cheques being a part and parcel of the commercial transactions people started losing faith in the cheque system at large. So there was a need to curb down such misuse of the power to issue cheques and the insertion of the Chapter XVII by the Banking, Public Financial Institutions and Negotiable Instruments Laws ( Amendment) Act, 1988 (66 of 1988) was blessing in disguise for the payee, the people who were the worst affected in case of such misuse. Chapter XVII as a whole deals with Penalties in case of Dishonour of Certain Cheques for insufficiency of funds in the accounts of the drawer of the cheques. This chapter consists of a total of ten sections amongst which Section 138 is of utmost importance. Section 138 speaks of dishonour of cheques for insufficiency, etc. of funds in the account of the drawer. This section imposes criminal liability on the person who is responsible for issuing a cheque to another person for the fulfilment of his liability without having sufficient funds in his account. This section actually forces a person to think twice before issuing a cheque if he has minimal funds in his accounts as because such issuance of cheques may land the drawer of the cheque in jail even if he had no dishonest intention to cheat the payee.

1.1 Concept of cheques and importance in Commercial World:The word cheque is a very well-known concept and every individual who operates an account in a bank is familiar with the concept of cheques. It is a very famous negotiable instrument which is very much essential in world of commerce. In simple words cheque can be said to be a written order instructing a financial institution which is a bank to pay a certain sum of money to a particular person on demand.Cheque as a negotiable instrument is a piece of paper which promises to pay its owner the amount written over it either on demand or as per the date mentioned on it. So the cheque can be said to be a negotiable instrument which is negotiable by delivery.It is generally presumed that once the cheque is delivered to the payee by the drawer of the cheque the payment of money to the payee will be made in due course of time and so the date on which the cheque is delivered is considered to be the date on which the payment is made irrespective of the fact as to when the cheque is presented for payment.The cheques play a vital role in the commercial world as because it relieves the businessmen from the burden of carrying currency notes to each and every place they go to carry on their business. From this public can understand that cheques actually have undertaken the function of money. Cheques have actually oiled the wheels of commercial transactions by faciliating quick and prompt commercial transactions.In a developing Country like India cheques have really helped in the development of the economy by faciliating quick commercial transactions which would not have been possible in case of absence of cheques. The importance of cheques in the commercial world can be understood from the fact of introduction of electronic cheques by Negotiable Instruments (Amendment and Miscellaneous Provisions) Act, 2002. The concept of electronic cheque is defined as a cheque which contains the exact mirror image of a paper cheque and is generated, written and signed in a secured system ensuring the minimum safety standards with the use of digital signature (with or without biometric signature and asymmetric crypto system).The Electronic Cheques are valid as a paper cheque itself. These cheques are safer and secure in comparison to the paper cheques and these cheques do not even require the payee to personally approach the banker to pay the debt of the drawer. These cheques are basically sent by mail to the person to whom the drawer has an intention to make the payment in order to fulfill his debt or liability and that person deposits the same with the banker. On deposition of such cheque with the banker the banker is obliged to make a transfer of payment from the account of the drawer who actually issued the cheque into the account of the person to whom the cheque was credited. This process of cheque transfer makes process of commercial transactions quite easy and feasible. So we can say that the introduction of cheques is actually a blessing in disguise for the commercial trade.A Negotiable Instrument is a document guaranteeing the payment of a specific amount of money, either on demand, or at a set time. According to the Negotiable Instruments Act, 1881 in India there are just three types of negotiable instruments i.e. promissory note, Bill of exchange and cheque. Cheque also includes Demand Draft. A cheque drawn by the drawer is presented for payment with the banker by the payee and the banker refuses to satisfy the claim of the payee then such a process is known as dishonour of cheques. The dishonour of cheque or refusal to satisfy the claim of the payee by the banker may be due to varied type of reasons like insufficiency of funds in the drawers account, closure of the account of the drawer due to any legal reasons etc. This process of dishonour of cheque gives a right to the person in whose name the cheque is issued to take the issuer of the cheque to the Court of Law for not being able to discharge his debt or liability either due to insufficiency of funds or due to closure of account.Prior to the introduction of Section 138 by the Banking, Public Financial Institutions and Negotiable Instruments Laws (Amendment) Act, 1988 (66 of 1988) all the issues relating to dishonour of cheque and the consequent non-payment of the debt vested a right to the holder of cheque to approach the civil courts for recovery of the amount which was due. The legal machinery relating to the dishonour of a cheque comes into motion for the protection of cheque holder if cheque is dishonoured.The Code of Criminal Procedure states that every offence shall ordinarily be enquired into and tried by Court within whose local jurisdiction it was committed. The complaint can be filed in a Court within the jurisdiction of which the cheque has been drawn or the place where the cheque is presented for collection and received an endorsement about the dishonour of the cheque or the place where the cheque is dishonoured. After the issue of notice to the drawer of the dishonour of his cheque petitioner filed a civil suit denying his liability to pay and, therefore, contending that Section 138 was not attracted and obtained an interlocutory injunction retraining the payee of the cheque from proceeding under Section 138. The grant of the injunction was held to be illegal. Civil and criminal proceedings are simultaneously possible. It is settled law that pendency of the criminal matter would not be an impediment to proceed with the civil suits. The criminal Court would deal with the offence punishable under the Act. On the other hand, the Courts rarely stay the criminal cases and only when the compelling circumstances require the exercise of their power. The Negotiable Instruments Act, 1881 was amended by the Banking, Public Financial Institutions and Negotiable Instruments Laws (Amendment) Act, 1988 wherein a new Chapter XVII was incorporated for penalties in case of dishonour of cheques due to insufficiency of funds in the account of the drawer of the cheque. These provisions were incorporated with a view to encourage the culture of use of cheques and enhancing the credibility of the instrument which have been found deficient in dealing with dishonour of cheques. Not only the punishment provided in the Act has proved to be inadequate, the procedure prescribed for the Courts to deal with such matter has been found to be cumbersome which resulted delay in disposing the cases.1.2 HISTORICAL DEVELOPMENT IN RESPECT OF A CHEQUE Origin of the word Cheque in England It is very difficult to trace out the origin of cheque. There is no definite view regarding the original of the cheque. The different thinkers have different views relating to its origin. The origin of word Cheque is obscure. According to J.W.Gilbert[footnoteRef:2] [2: 2 M.S.Parthasarathy Cheque in law and practice at pp. 1-2 ]

The word Cheque is derived from the French Eches meaning Chess. The Chequers placed at the doors of public houses were intended to represent Chess-boards, and originally denoted that the game of Chess was played in those houses. Similar tables were employed in reckoning money, and hence came the expression to check an account; and the Government office where the public accounts were kept, was called the Exchequer. There is also another explanation. It is said that the word `Cheque arose from the consecutive numbers which were placed upon the official forms to act as a check or means of verification.Similarly Dr. Bett [footnoteRef:3]says: [3: Bhashyam and Adiga- The Negotiable Instrument 13rh Ed. p.5 ]

This word cheque is the same as check and appears to have been at first applied to the counterfoil which keeps a tally of the amount. This spelling was kept up till comparatively late period down to and including the 12th edition of Byles on Bills. It is interesting to note that Dr. Bett is of opinion that cheque or exchequer are all words derived from the game of chess and go back to the Persian word for a King and that the principal piece has given its name to the game itself. In this way he says that Cheques do not seem to have been introduced in England till the seventeenth century; for, it is really then that the business of banking was undertaken by goldsmiths in England, who borrowed the practice from Holland and from the money-dealers of Florence who flourished as early as the thirteenth century. In Holdens History of Negotiable Instruments in English law a cheque dated 14.08.1675 is described at page 210 and is worded[footnoteRef:4]: [4: ibid at p. 5]

Mr. Thomas, I desire you to pay unto Mr. Samuell Howard or order upon receipt hereof the sum of nine pounds thirteen shillings and six pence and place it to the account of 14th August, 1675 Yours Servant 9:13:6 EDMOND WARLOPP On the reverse of the instrument is the payees endorsement worded thus: Received in full of this Bill the sum of nine pounds thirteen shillings and six pence. Samuell Howard. It will be noticed that the form of the instrument is very similar to that of a modern cheque, even though the language employed is somewhat different: modern customers do not sign themselves `your servant when writing to their bank managers.One view is that the London goldsmiths were the first bankers in England. They received money from their customers on condition to pay its equivalent when called upon to do so. When a customer wished to make payment to a third party, it was customary to write an order addressed to his banker to pay the sum required and these notes or orders were the earlier forms of cheque currency. The cheque or dream note as it was called and which was used by the customers of the goldsmith banker Before banking in modern sense of the word originated in England the Goldsmiths exercised many of the functions of bankers and some of the oldest existing private banks in England are the direct descendent of these Goldsmiths. They received money on deposit from their customers subject to the obligation to repay an equivalent sum, when called upon to do so. They paid interests on deposits. They discounted bills of exchange and various types of Treasury Exchequer money orders; they bought and sold bullion; they circulated their own bank notes and they changed the coins of other countries for English coins and so on. From about the middle of the seventeenth century, the depositor would address to his goldsmith a short letter of request authorizing the payment to his creditor of the sum due. They would take this authority to the goldsmiths shop and there receive the sum in specie. Before long, the merchant debtor drew his bill or note in favour of his creditor or order or in favour of him or bearer, and the goldsmith duly honoured it upon presentation. The accounts of those merchants, which nowadays would be called current accounts, were usually known as running cashes, and they became popular. By 1677 there were fifty-eight goldsmiths in London, who kept running cashes, thirty-eight of whom lived in Lombard Street. Furthermore, there is clear evidence that the goldsmiths employed the funds left with them by making loans to others. Thus, they made loans to Cromwell and also to merchants who were the goldsmiths performed the basic functions of modern bankers by accepting sums at interest by making loans and by providing their customers with facilities for making payments to third parties.The word Cheque or check as it was spelt at first did not come into use until the eighteenth century. The modern spelling of the word was adopted about the middle of the nineteenth century. The 1827 edition of Joseph Chittys work on Bills of Exchange used the old spelling check. The following year J.W. Gilbert published his Practical Treatise on Banking. He used the modern spelling Cheque, and he explained that he had adopted that spelling because it was free from ambiguity.

In India:The Cheque was introduced in India by the Bank of Hindustan, the first joint stock bank established in 1770. In 1881, the Negotiable Instruments Act (NI Act) was enacted in India, formalizing the usage and characteristics of instruments like the cheque, the bill of exchange and promissory note. The NI Act provided a legal framework for non-cash paper payment instruments in India.In 1938, the Calcutta Clearing Banks' Association, which was the largest bankers' association at that time, adopted clearing house.Until 1 April 2012, cheques in India were valid for a period of six months from the date of their issue, before theReserve Bank of Indiaissued a notification reducing their validity to three months from the date of issue.In the commonwealth almost all Jurisdictions have codified the law relating to negotiable instruments in a Bills of Exchange Act 1882 in the UK, Bills of Exchange Act. 1908 in New Zealand. The Negotiable Instrument Act 1881 in India and the Bills of Exchange Act 1914 in Mauritius. The Bills of Exchange Act Additionally most commonwealth Jurisdictions have separate cheques Acts providing for additional protections for bankers collecting unendorsed or irregularly endorsed cheques, providing that cheques that are crossed and marked not negotiable or similar are not transferable, and providing for electronic presentation of cheques in inter-bank cheque clearing system.

1.3 DEFINITION OF A CHEQUE As per Section 6 "A cheque is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand." After 2002 amendment cheque includes the electronic image of a truncated cheque and a cheque in the electronic form." In terms of Explanation, (a) " 'a cheque in the electronic form' means a cheque which contains the exact mirror image of a paper cheque, and is generated, written and signed in a secure system ensuring the minimum safety standards with the use of digital signature (with or without biometrics signature) and asymmetric crypto system; (b) 'a truncated cheque' means a cheque which is truncated during the course of a clearing cycle, either by the clearing house or by the bank whether paying or receiving payment, immediately on generation of an electronic image for transmission, substituting the further physical movement of the cheque in writing."

M.I.C.R.Cheques/Drafts[footnoteRef:5] [5: http://www.caclubindia.com/forum/knowledge-bank-negotiable-instruments-act--108880.asp#.U5yHK5SSxic]

In MICR (Magnetic Ink Character Recognition) cheques:1. First six number indicate the cheque number2. Next three numbers indicate city code3. Next three numbers indicate Bank code 4. Next three numbers indicate Branch code

A. Statutory Definition Section 6 of the Negotiable Instruments Act, 1881 defines the Cheque as under: A cheque is a bill of exchange drawn on a specified Banker and not expressed to be payable otherwise than on demand. Substitution of new section for section 6 by the Negotiable Instruments (Amendment and Miscellaneous Provisions) Act 2002:[footnoteRef:6] [6: (1933) 49 ILR 116.]

For section 6 of the Negotiable Instruments Act 1881(26 of 1881) (hereinafter referred to as the principal Act), the following section shall be substituted, namely: Sec 6. Cheque- 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. It will be thus seen that cheque is a special kind of bill of exchange in the sense that it is drawn in the name of a specified Banker.

B. Dictionary Meaning Venkataramaiyas law lexicon Dictionary defines cheque as under[footnoteRef:7] : [7: 2nd Ed 1978, Vol. 2.]

Cheque is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise then on demand.

Mitras legal and commercial Dictionary[footnoteRef:8] defines cheque as under:- [8: 2nd Ed 1976 by A.R Biwas. At pp. 130-131.]

A cheque is a bill of exchange drawn on a banker, payable on demand A bearer cheque is one expressed to be payable to a particular person or bearer, an order cheque is one which is expressed to be so payable, or which is expressed to be payable to a particular person or body and does not contain words prohibiting transfer or indicating an Intention that it should not be transferable.A cheque which bears across its face an addition of the name of a banker, either with or without the words not negotiable is crossed specially to that banker.[footnoteRef:9] [9: 3rd Ed Vol. 2 by Halsbury s laws of England, pp 151-152]

Whartons Law Lexicon defines it as[footnoteRef:10] [10: 14th Ed. 3rd Indian Reprint 1996, p. 186 ]

Cheque- An order addressed to a banker requesting him to pay to (a) the person therein mentioned, or his order, or (b) the person therein mentioned, or the bearer of the cheque, the sum of money therein mentioned; defined in the Bill of Exchange Act, 1882, Sec. 73 by which such provisions of that Act as are applicable to a bill of exchange payable on demand apply also to a cheque as a bill of exchange drawn on a banker payable on demand.

K. J. Aiyers Judicial Dictionary[footnoteRef:11] defines cheque as under: [11: 8th Ed 1980, p.203.]

A cheque is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand (section 6 Negotiable Instruments Act, XXVI of 1881). A bankers cheque is a peculiar sort of instrument, in many respects resembling a bill of exchange, but in some respect entirely different. A cheque does not require acceptance in ordinary course, it is never accepted, and it is never intended for [footnoteRef:12]circulation, it is given for immediate payment; it is not entitled to days of grace; and though, strictly, speaking, an order pay to a third person the whole or part of debt, yet in the ordinary understanding of person it is not so considered. It is more like an appropriation of what is treated as ready money in the hands of the banker, and in giving the order to appropriate to a creditor, the person giving the cheque must be considered as the person primarily liable to pay, who orders his debt to be paid at a particular place, and as being much in the position of a maker of a promissory note or the acceptor of a bill of exchange payable at a particular place and not elsewhere who has no right to insist on immediate presentation at that place. [Per Lord Wensleydale]. [12: 15th Ed (1993) Vol. III, pp. 145-146.]

A cheque is clearly not an assignment of money in the hands of a banker, The banker is bound by the contract with his customer to honour the cheque when he has sufficient assets in his hands; if he does not fulfil his contract he is liable to an action by the drawer, in which heavy damages may be recovered if the drawers credit has been injured. I do not understand the expression attributed to Byles, J. in Keane v. Beard[footnoteRef:13]; but I am quite sure that the learned Judge never meant to lay down that a banker who dishonour a cheque is liable to a suit in equity by the holder. [13: 8 CB (NS), p. 381. ]

The New Encyclopaedia Britannica Micropaedia Ready Referencer Ceara Deluc[footnoteRef:14] defines it as- [14: 15th Ed (1993) Vol. III, pp. 145-146. ]

Cheque, also spelled CHEQUE, bill of exchange drawn on a bank and payable on demand; it has become the chief form of money in the domestic commerce of developed countries. As a written order to pay money, it may be transferred from one person to another by endorsement and delivery or in certain cases, by delivery alone Negotiability can be qualified by appropriate words, as with restrictive endorsements, or by the check form itself. Most checks are not paid in currency but by the debiting and crediting of accomplished either by direct presentation, by correspondent banks, in the United States. A cashiers check is issued by a bank against itself and is signed by the cashier or some other bank officer. It has unquestioned acceptability as exchange. A certified check is a depositors check that has been guaranteed by the bank upon which it is drawn and is so stamped. Travellers checks are cashiers checks sold to travellers that require two signatures is placed on the check in the presence of an issuing agent; the purpose of identification and is placed on the check when it is cashed. Purchasers of travellers checks are guaranteed reimbursement by the issuers of the Checks if the checks are lost or stolen. New Standard Encyclopaedia[footnoteRef:15] defines it as [15: 40 Vol.-3 pp. C-234-236 ]

Check- a written order to a bank to pay money. It is a convenient and safe means of transferring money, and provides a permanent record and receipt for each transaction. Any person or firm having money on deposit in a checking account in a bank may write a check on that bank. In some cases, money may be transferred from one checking account to another without writing a check; the transactions accomplished by computer. To open a checking account, a person deposits a sum of money in a bank. The bank gives him a check-book with blank check forms, and provides him with a means of keeping a record of the checks he writes and the amount of money he still has on deposit. The bank gives him a receipt for each new deposit and sends him a statement (usually monthly) showing a complete record of all transactions. All concealed checks (checks that have been cashed by the bank) are returned with the statement, providing the depositor with proof that payment was received. The bank usually makes a small service charge on every account, and perhaps also a charge for each check written. Ordinarily, no interest is paid on checking accounts. To make out a check, the depositor writes the date, the name of the payee (the person or firm who is to receive the money), and the amount. He then signs his name. Before cashing the check the payee must endorse it by signing his name on the back. He then either deposits it in a bank or exchanges it for cash by giving the check to a bank, currency exchange, business firm, or individual. The new owner can endorse the check to someone else or can deposit it in a bank. When a check reaches a bank, it is forwarded through a clearing-house back to the bank on which it was drawn. After making sure the depositors signature is genuine, this bank in turn pays the cashing bank through the clearing- house. The biggest danger in accepting a check is that the person writing it may not have enough money (or any money) in the bank to cover it. Forgery is another danger. The best defence against bad checks is to refuse to accept checks from strangers.

Thomsons Dictionary of Banking,[footnoteRef:16] defines Cheque as [16: 12th Ed. 1974.]

CHEQUE (Formerly written check) The word is derived from the French Eches, Chess. The Chequers placed at the doors of public houses are intended to represent Chessboards and originally denoted that the game of Chess was played in those houses. Similar tables were employed in reckoning money, and hence came the expression to check an account; and the Government office where the public accounts were kept was called the Exchequer. Another explanation is that the word `Cheque arose from the consecutive numbers, which were placed upon the forms to act as a check or means of verification. In the United States the word check is used at the present day. Cheques first came into use about 1780. Sir John Paget, in the Gilbert Lectures, 1916 (No.1), said money on current account is just like any other debt, it is repayable on demand; if a customer comes and asks for his money, he is entitled to have it without the formality of drawing a cheque. In such a case, however, the customer would have to give a receipt. But the regular and ordinary method of withdrawing money from a current account is by means of a cheque. A depositor may withdraw money from his deposit account by signing a form of receipt. Part III of the Bills of Exchange Act, 1882, is devoted to provisions regarding each features of cheques as are not found in connection with a bill

Section 73 defines a cheque Cheque is a bill of exchange drawn on a banker, payable on demand. Except as otherwise provided in this Part, the provisions of this Act applicable to a bill of exchange payable on demand apply to a cheque. Section 3 defines a bill of exchange. These two sections, taken together, show that a cheque is an unconditional order in writing, drawn on a banker, signed by the drawer requiring the banker to pay on demand a sum certain in money to or to the order or a specified person or to bearer. A cheque differs from a bill in several points: it does not require acceptance; it is drawn upon a banker; the banker may be protected if he pays it bearing a forged endorsement; the drawer is the person liable to pay it and the drawer, as a rule, is not discharged by delay in presenting it for payment. The intention of a cheque is that it be paid at an early date. The drawees authority to pay is determined by notice of the drawers death, and the drawer may stop payment of the cheque. Indelible pencils are not desirable articles with which to draw cheques. A cheque written in ordinary pencil should not be paid without personal reference to the drawer, as the banker cannot possibly tell whether or not it has been altered. It is much to be desired that all cheques should be written in ink. Typewritten cheques are too easily altered, and their use should be discouraged as far as possible. A cheque written upon a sheet of paper, provided it is in proper form, is sufficient. Cheques of this description should, however, never be drawn except in cases of extreme necessity. A customers cheque must be unambiguous and must be ex facie in such a condition as not to arouse any reasonable suspicion. But it follows from that it is the duty of the customer, should his own business or other requirements prevent him from personally presenting it, to take care to frame and fill up his cheque in such a manner that when it passes out of his (the customers) hands it will not be so left that before presentation, alterations, interpolations, etc., can be readily made upon it without giving reasonable ground for suspicion to the banker that they did not form part of the original body of the cheque when signed. To neglect this duty of carefulness is a negligence cognizable by law. The consequences of such negligence fall alone upon the party guilty of it.A cheque is drawn in England on an English bank in foreign currency, the method usually adopted between the collecting and paying bankers is for the cheque to be presented for payment converted into sterling at the current rate of exchange. If the paying banker is in agreement with the rate of cheque is paid in sterling. If the customer instructs his banker to debit the amount for which the cheque has been drawn to a currency account, the paying banker, having paid sterling, sells the currency at the current rate, thereby reimbursing himself for the amount paid to the collecting banker. If the paying banker is not in agreement with the rate of exchange claimed by the collecting banker, he offers a draft in currency on his foreign correspondent, and this draft is usually taken by the collecting banker in place of the sterling originally claimed, and the currency account of the customer is debited with the amount. If the customer wishes to pay in sterling, the equivalent at the rate agreed upon between the collecting and paying banker is debited to his sterling account, but should the paying banker refuse to pay at the rate demand, he will issue a cheque in currency on his foreign correspondent, debiting the sterling account of his customer at the selling rate for drafts on his foreign correspondent. The members of the British Bankers Association agreed in June 1946, to standardize cheque forms. As regards size, the must not exceed 8 inches by 4 inches and must not be less than 6 inches by 3 inches. Prior to this time, the amount was usually inserted in figures on the left-hand side; as from June 1946, the space for the amount in figures has been shown on the right hand side, immediately above the signature of the drawer. The customary form of cheque should be adhered to as much as possible, though legally any form which fulfils the requirements of the Bills of Exchange Act would be sufficient as, for example, where the drawer instead of signing his name at the bottom signs it at the top, I, John Brown, direct you to pay to John Jones the sum, etc. The Bank of England declines to pay cheques unless drawn upon the forms it supplies. Some cheques have a notice upon them that they are payable only if presented within a certain period. Such a condition may possibly exclude the document from being considered a cheque under the Bills of Exchange Act. In Thairlwall v. Great Northern Railway Company[footnoteRef:17] where a dividend warrant had a condition at the bottom of it that it will not be honoured after three months from date of issue unless specially indorsed for payment by the secretary. It was argued that the document was not a cheque because of this condition. Mr. Justice Bray said, I have felt a great deal of doubt on this point because of this statement. But, on the whole, I am inclined to think that this document is a cheque, and is within the meaning of Section 73 and 3 of the Bills of Exchange Act, 1882, a cheque and an unconditional order in writing. And I think it is none the less a cheque because of that statement at the bottom of the document. I do not consider that statement makes the order conditional. [17: (1910) 2 K.B. 509 ]

There are also forms of cheques, or rather document, which make the payment dependent upon a certain receipt being signed. Conditional documents of this kind are not cheques as defined by the Bills of Exchange Act. They may, however, be crossed like a cheque as mentioned in Receipt on Cheque. The form of cheque (or, more correctly, order for payment) in use by some Local Authorities is a peculiar one as, being drawn upon the Treasurer, it does not conform with the requirement of the Bills of Exchange Act that it be drawn upon a banker. It is considered, however, that, although drawn upon an individual, the order is practically drawn upon the bank where the Treasurers account is kept, and the banker paying such order is entitled to the protection which is afforded by Section 60 of the Bills of Exchange Act, 1882, against forged endorsements. If such orders should be held not to come within the Bills of Exchange Act, then the benefit of Section 60 would not apply, and they would also be incapable of being validly crossed. As far as the collecting banker is concerned, it would appear that local authority drafts now fall within Section 4(2)(b) of the Cheques Act, 1957. Cheques paid to credit of a customers account should be carefully examined before being remitted for collection, and if not in order should be returned to the customer, or, if possible, sent out to him to be remedied. Since the passing of the Cheques Act, 1957 (q.v.), endorsement is necessary for various reasons only in the following cases

i) Where cheques are cashed or exchanged across counter; ii) Where cheques have been negotiated; iii) Where cheques payable to joint payees are tendered for the credit of an account to which all are not parties; iv) Where a cheque acts as a combined cheque and receipt form (these cheques will bear a bold letter R on their face); v) In the case of bills of exchange other than cheques, and promissory notes.

Some of the categories stem from the Clearing Bankers Circular rather than from the Act and it is not certain that in all cases the courts would insist on endorsement Westminster Bank Ltd. v. Zang.[footnoteRef:18] [18: (1966) All E.R. 114 ]

With regard to alterations in cheques and fraudulent alterations as mentioned in Alterations. If there is a difference between the amount writing and the figures on a cheque, the cheque may be paid according to the amount in writing, but it is the usual custom, and a prudent course, to return the cheque unpaid marked amounts differ. If the figures have been omitted and the amount only appears in writing, a banker is justified in paying the cheque according to the words, though if the words have been omitted and the amount is given only in figures, the cheque should not be paid. A cheque payable to John Brown only or to John Brown, not transferable, must be paid to none other than John Brown. If the payee himself presents a cheque for payment and declines to indorse it, he has probably a legal right to do so, and the banker paying the cheque will protected under section 1(1) Cheques Act, 1957 (q.v.) if the cheque is otherwise in order. However, the circular dated 23rd September 1957, of the Committee of London Clearing Bankers included as cheques cashed or exchanged across the counter. It is considered that the public interest will best be served by continuing existing practice in regard to cheques cashed or exchanged. The Mocatta Committee set up by the Government to examine the whole question of endorsement attached importance to endorsement of such cheques as possibly affording some evidence of identity of the recipient and some measure of protection for the public. If the balance of a customers account will not allow of the full payment of a cheque, which is presented, the cheque may be dishonoured. A cheque cannot be paid in part. In England, if such a cheque is dishonoured and another cheque is presented subsequently for a smaller amount, which the account will stand, it may be paid. In Scotland, however, when a cheque is presented for payment and there is not a sufficient balance to meet it, the cheque attaches such funds as there may be in the bankers hands belonging to the drawer, and subsequent cheques, though for a less amount than the balance of the account, will be returned unpaid. A banker does not, as a rule, pay a cheque, which has been cut, or torn, into two or more portions, or torn sufficiently to suggest cancellation. But if a mutilated cheque bears a note upon it signed by a collecting banker, such as accidentally torn, it is customary to pay it. A cheque is sometimes marked or certified by a banker as being good for the amount for which it is drawn. It may be marked by the banker on whom it is drawn for another banker, as a matter of convenience for the purposes of clearing arrangements. Or, occasionally, it may be marked at the request of the drawer, or even at the request of the payee or holder, English bankers do not encourage the marking of cheques as between themselves and the public, it being much the preferable way to pay the cheque, and, if necessary, give a draft in exchange. In America, the certification or acceptance of cheques is very common which may be seen in Certification of Cheque. Marking a cheque by a banker is not equivalent to acceptance. If it was marked at the request of a payee or holder it could not be debited to the drawers account if, in the meantime, the drawer has died or has stopped payment of the cheque, or if a receiving order has been made or notice of the presentation of bankruptcy petition has been received. A person is liable to be charged under the Theft Act, 1968, if he gives a cheque in payment of a purchase when he has no account with the baker on whom the cheque is drawn.

1.4 ESSENTIALS OF A CHEQUE Cheque is one of the important negotiable instruments. It is frequently used by the people and business community in the course of their personal and business transactions. The definition of cheque has been given in Section 6 of Negotiable Instrument Act in these words, A cheque is a bill of exchange drawn on a specified banker and is expressed to the payable, otherwise than on demand. The essential requisites of cheque are as: -

A) Must be in Writing The cheque may be written in hand by using ink or ballpoint pen, typed or even it may be printed. But the customer should not use pencil to fill up the cheque form. Even though other columns may be permitted to be written in hand or printed or typed, the signatures should be made by ink pen or ballpoint pen by the maker.

B) Must be Unconditional The order to pay the amount must be unconditional. If there is any condition imposed to pay the amount to the holder of the cheque then it will not be considered as a cheque. A cheque made payable on the happening of a contingent event is void ab-initio.

C) Must be Drawn on a Specified Banker For the validity of a Cheque it must be drawn on a specified banker. If there is not mentioned in the cheque about the banker it would not be a valid cheque. In addition to it, it must contain all the three parties i.e. Drawer, Drawee and Payee.

D) Certain Sum of Money It is one of the essential requirement of the Cheque that it must be payable in money and money only. If is not in term of money then it will be a valid one. The sum mentioned in it must be certain.

E) Certain Payee The parties of the Cheque must be certain. There are three parties of the cheque i.e. Drawer, Drawer and Payee. In a valid Cheque the name of the must contain in other words they must be certain. It must contain an order, which must be unconditional. If any condition were imposed then it would not be a valid cheque.

F) Date In a valid cheque it must be signed by the drawer with date otherwise it would not be a valid cheque. It must be written in hand by using ink or ball point pen, typed or even it may be printed as it becomes conclusive proof i.e. presumption under Section 118(b) unless contrary is proved. In accordance with Section 5 and 6 of the Indian Negotiable Instruments Act, 1881, cheques are regarded as negotiable.

1.5 A study of the cheque, thus, requires a study of the negotiable instrument:

A number of definitions have been given of the Negotiable Instrument, however, some of them are being discussed below: - J. M. Rosenbery in his Dictionary of Banking and Finance[footnoteRef:19] defines Negotiable Instrument as under: - [19: Ed. 1982, p. 57 ]

Negotiable Instrument, the Uniform Negotiable Instruments Act states: An instrument, to be negotiable must conform to the following requirements:

(i) It must be in writing and signed by the maker or drawer; (ii) It must contain an unconditional promise or order to pay certain sum in money; (iii) It must be payable on demand; or at a fixed or determinable future time; (iv)It must be payable to order or to bearer; and (v) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty.

On the other hand Wills[footnoteRef:20] has defined a negotiable instrument as under: - [20: S.N.Gupta- Dishonour of Cheque, Liability Civil and Criminal, 3rd Ed. p. 5 ]

A negotiable instrument is one the property in which is acquired by anyone who takes it bonafide and for value, notwithstanding any defect of title in the person from whom he took it, from which is follows that an instrument cannot be 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 the instrument. Further, it has been held in Sukanraj Khimraja v. Raja Gopalan,[footnoteRef:21] that an important fact about negotiability is that by dishonour of a cheque the negotiability of the cheque is lost. [21: (1989) 1 LW 401. ]

In this way, the first essential feature of a cheque is that it can be transferred. The transfer can either be by way of mere delivery or by an endorsement and delivery. Whenever, the procedure mentioned above is adopted, the ownership of the property in the instrument is transferred and further no other document is required for this purpose. Whereas on the other hand the other documents e.g. shares are not negotiable, as the property in the said shares is not transferred only by means of delivery. The second important characteristic of a cheque is that a holder in the course gets a valid title to it despite of any defect in the transferors title. Such a bona-fide transferee for value gets a complete, independent and indefeasible title to the instrument and such person is known as the holder in due course and he gets a title against the whole world i.e. ad-rem. In case this characteristic is missing then the whole machinery of trade will be upset as nobody will accept a cheque if the transferee was made liable to make fishing enquiries about the titles of the transferor. The third and the last characteristic of a cheque on account of its being a negotiable instrument is that is has an inherent mechanism built in itself and it has a right of action infused in itself. The holder of a cheque has therefore, a right to sue thereon in his own name and he is not dependent upon another title. According to the negotiable instrument, whenever a bona-fide holder for value without notice- or, in short a holder in due course sues on the instrument, it is for the defendant to prove that the plaintiff is not entitled on the cheque on which the case is being filed. It should be remembered that a cheque, which is negotiable, can be made not negotiable if the negotiation is prohibited. In case a cheque is crossed not negotiable or made payable only to the payee named therein and not to his order or to bearer this cheque is not negotiable. Cheque or a Bill marked pay cash or order does not come within the meaning of the Act and is not a negotiable instrument. Generally speaking, the term Cheque is simply an ordinary slip of paper containing a written order, addressed to the banker by his customer, which is frequently used in connection with transactions of banking business i.e. in other words it is a negotiable instrument. The term `Cheque has been defined in Section 6 of the Negotiable Instruments Act, 1881 although there were certain principles of equity and usages of trade which general convenience and commonsense of justice had established to regulate the dealings of merchants and mariners in all the commercial countries of the civilized world. As it has been stated above, a piece of paper, in the form of cheque, promissory note or bill of exchange which authorise a person or party to get the sum of money mentioned therein, is known as Negotiable Instrument. The main categories of Negotiable Instruments are Promissory Note, Bill of Exchange and Cheques. Not only India but also all the countries of world make use of the negotiable instruments in some of other form in the course of personal as well as business transactions. The result is the law relating to Negotiable Instruments is mainly based on the common customs and usage of the business community of the world as a whole. The general outline of this law is, therefore, almost one and the same in all countries.1.6 PARTIES TO THE CHEQUE The maker of a cheque is called the Drawer, the person thereby directed to pay is called Drawee and the person named in the instruments, to whom or to whose order the money is by the instrument direct to be paid, is called the Payee.[footnoteRef:22] [22: Section 7 of the Negotiable Instruments Act, 1881 ]

The person entitled in his own name to the possession of the cheque and to receive or recover the amount due is called the Holder of the cheque.[footnoteRef:23] The person who for consideration becomes the possessor of the cheque if payable to bearer, or the payee or endorsee thereof, if payable to order, before the amount mentioned in it became payable and without having sufficient cause to believe that any defect existed in the title of the person from whom he derived his title is called the Holder in due course. [23: Section 8 of the Negotiable Instruments Act, 1881]

The maker or the holder of the cheque signs his name (endorse) on the back of the cheque for the purpose of negotiable and he is said to be the Endorser.The endorser who signs his name and directs to pay the amount mentioned in the cheque to, or the order of, a specified person, and the person so specified is called the Endorsee of the cheque.

1.7 HOLDER AND HOLDER IN DUE COURSE A. Holder Every instrument initially belongs to the payee and he is entitled to its possession. The payee can transfer it to any person in payment of his own debt. This transfer is known as negotiation. Negotiation takes place in two ways. A bearer instrument passes by simple delivery and the person to whom it is delivered becomes the holder. An order instruments, on the other hand, can be negotiated only by endorsement and delivery and the endorsee becomes the holder. Hence the holder means either the bearer of endorsee of an instrument. Accordingly Section 2 of the English Bills of Exchange Act, 1882, provides that holder means the payee or endorsee of a bill or note who is in possession of it or the bearer thereof. The definition contained in Section 8 of the Indian Act is to the same effect, although expressed in different words. It says that holder means any person entitled in his own name to the possession of an instrument and to receive and recover the amount. Now, no one can be entitled to the possession of a bill or note unless he becomes either the bearer or endorsee thereof.[footnoteRef:24] Section 8 says: [24: Dr. Avtar Singhs Negotiable Instruments, 3rd Ed. p. 39 ]

The holder of a promissory note, bill of exchange or 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.In Section 139 the words used are the holder of a cheque received the cheque. The word Holder has been defined in Section of the 8 of the Negotiable Instruments Act as well as in Section 2 of English Bills of Exchange Act, 1882 as mentioned above. Reading these definitions with section 78 of the Negotiable Instruments Act it means that a person to whom the payment should be made in order to discharge the maker or acceptor from all liabilities under the instrument is the holder of the instrument or he is accredited agent such as Banker, acting as an agent for collection. A person who cannot claim and does not have right to recover the amount due on the instrument, is not the holder. Thus, a person who can sue in his name is a holder. He may be the payee or one who becomes entitled to it as endorsee or becomes the bearer of an instrument payable to the bearer. The most significant words in the section are entitled in his own name. Thus, the term holder does not include a person who, though in possession of the instrument, has no right to recover the amount due thereon from the parties thereto. However, the assignee of such person is entitled to sue in his own name.[footnoteRef:25] [25: S.N.Guptas Dishonour of Cheque, 3rd Ed. 1996 ]

B. Holder in Due Course Section 9 of the Negotiable Instruments Act, 1881 defines Holder in Due Course which reads as under: - Holder in due course means any person who for consideration became the possessor of the a promissory note, bill of exchange or cheque if payable to bearer, or the payee of endorsee thereof, if payable to order, before the amount mentioned in it became payable, and without having sufficient cause to believe that any defect existed in the title of the person from whom he derived his title. In order that a person can be called a holder in due course, he must show: (a) that he is the holder of the negotiable instrument, (b) he has obtained it for consideration, (c) he has obtained it before the maturity of the negotiable instrument, and (d) that he has obtained the negotiable instrument in good faith. Until contrary is proved the holder of a negotiable instrument is presumed to be a holder in due course.[footnoteRef:26] [26: Section 118(g). ]

In India it has been seen above the payee can also be a holder in due course but in England the payee of a negotiable instrument cannot be holder in due course as was decided by the house of Lords in Jones v. Waring and Gillow.[footnoteRef:27] If a person gets an instrument under a forged endorsement, he cannot be called a holder in due course. [27: 1926 AC 670; Lewis v. Clay, 14 T.L.R. 149. ]

Section 9 requires that to be a holder in due course a person must take the negotiable instrument before the amount due thereon became payable. Section 59 of the Negotiable Instruments Act also provides that a person taking a negotiable instrument after its maturity has the rights thereon of a transferor. It means that a person taking an instrument after maturity will not be a holder in due course and will not be capable of having a better title than that of the transferor. Holder in due course must take the negotiable instrument without having sufficient cause to believe that any defect existed in the title of the person from whom he delivers his title. The condition requires that he should act in good faith and with reasonable caution. In the case of Mathew George v. Jacob[footnoteRef:28] the Kerala High Court held that complainant need not prove identity of accused: A reading of section 138 would clearly indicate that as and when cheque signed in discharge of a legally enforceable debt is dishonoured, the offence under section 138 of the Act comes into existence. Further, as per section 139 of the act, there is a presumption in favour of the holder of the cheque. It is the burden of the complainant to prove that the cheque was signed by the drawer in discharge of a legally enforceable debt. If such burden is proved, the presumption under section 139 of the Act comes into force in favour of the complainant. In such circumstances, the identity of the signatory of a negotiable instrument does not arise. Further, as per section 9 of the Act, a complaint can be filed by a person who is holder in due course of a negotiable instrument like the cheque. [28: III (2006) B.C. 21 (Ker): (2006)1 KLT 126. ]

That apart, in the decision reported in Venugopalan v. Prakasan, the Kerala High Court had taken the view that when a private complaint is filed before the court, the court is expected to make an enquiry under section 202, Cr.P.C. only with regard to the offence alleged and not with regard to the identity of the accused who committed the offence. In the above circumstances, identity of the signatory of a cheque is not a question to be considered by the Trial Court. In case of Sardar Jasvir Singh v. State of Uttar Pradesh in the Honble Allahabad High Court held that a person in possession of cheque and cheque is payable to bearer would be deemed to be holder in due course of cheque and would have locus to file complaint of dishonour of cheque.[footnoteRef:29] [29: AIR 2007 (NOC) 1617 (All): 2007 (3) ALJ 553. ]

Rights of a Holder[footnoteRef:30] [30: http://www.caclubindia.com/forum/knowledge-bank-negotiable-instruments-act--108880.asp#.U5yHK5SSxic]

1. An endorsement in blank may be converted by him into an endorsement in full. 2. He is entitled to cross a cheque either generally or specially with the words Not Negotiable.3. He can negotiate a cheque to a third person. 4. He can obtain a duplicate of the lost instrument.

1.9 Necessary Ingredients which attract Section 138:

Section 138 of the NI Act, 1881 was mainly enacted by the Legislature to restore back the faith of the mercantile community with respect to the mechanism of the cheques as awhole. This section was mainly enacted to protect the holder of cheque from the dishonest attitude of the drawer of the cheque. But in order to attract liability under Sec 138 certain provisions of the section are to be complied with as specified in case of Anchor Capital of India v. State of Gujarat. These provisions are as follows: The cheque must be issued in favour of a payee for the discharge either in full or in part of a legally enforceable debt. Then the same cheque must be presented for payment within six months from the date of issue of the cheque or the date of validity whichever is earlier and the cheque should be returned back by the banker as unpaid as because the funds available in the account of the drawer are insufficient for the debt to be paid. After receiving such an information from the banker with regards to the insufficiency of funds the payee must sent a notice intimating the same to the drawer within thirty days of receiving such notice, Then it is the duty of the drawer that within fifteen days of receiving such notice from the payee it has a duty of taking any action to make good the loss suffered by the payee. But if under any circumstances the drawer fails to take any action with regards to the dishonour of cheque then the drawer is considered to be responsible for the loss suffered by the payee without even he having an intention to cheat the payee. So under Sec 138 the concept of criminal liability begins from the point where the drawer even after receiving the notice from the payee fails to take any action in order to prevent such loss suffered by the payee. So a detailed analysis of the Section 138 helps us to understand that the section does not make the drawer criminally liable from the very starting point when the cheque is dishonoured. It gives a chance to the honest drawers to prevent any type of harassment at the hands of law by way of taking any action to make good the loss suffered by the payee after receiving a notice from the payee intimating him about the dishonour of the cheque. So this means that the cause of action with respect to the dishonour of a cheque necessary to make a person criminally liable arises only after the drawer fails to take any action within fifteen days of receipt of the notice from the payee informing him about the dishonour of the cheque to make good the loss suffered by him. In the case of Raman B v. Shasun Chemicals and Drugs Ltd., (2006) 4 CTC 529: (2006) 2 LW (Cri) 775(Mad). It was held that the cause of action for prosecution under the Section 138 does not arise from mere presentment or dishonour of the cheque. It arises only when the drawer defaults in paying up the cheque amount due within fifteen days of receipt of the notice informing him about the dishonour of the cheque. The legislative mandate is that the Drawer should not be prosecuted immediately with the dishonour of cheque but rather he should be given a chance by the payee to rectify his mistake.

SUM UP:

In India, prior to the enforcement of the present Negotiable Instrument Act, English Acts and Statutes dealing with this subject were in force. The frequent use of negotiable instruments in personal as well as business transaction in India was also not a totally new practice during the British regime. The reason was that since olden days, the use of such instruments like Hundies, was prevalent in India. In Mughal period too, there was same position. When British regime established in India three fold system in this regard was enforced and Muslims were governed by their respective personal law. The Europeans were governed for that purpose by English laws, whenever there was any conflict between personal laws, i.e. Hindu Law or Muslim law with English Bill of Exchange and there was no proof of any specific usage, the English law had to prevail. Thereafter, various English Acts and statutes were enforced in India to deal with the matters relating to negotiable instruments. Those acts and Statues were enforced in India to deal with the matters relating to negotiable instruments. Those Acts and statues were English Bill of Exchange Act. The law reliant to promissory notes [Statutes of William III, C, 17 and 3 and 4 Ann(8)] and Governor General in Council Act ( Act V of 1866). In 1866 Law Commission drafted a Bill of regulating the use and transactions through Negotiable instruments. On the basis of it Indian Negotiable Instruments Act, 1881 (Act No. XXVI of 1881) was passed and enforced in the whole territory of India except the state of Jammu and Kashmir. This Act was mainly based on the principles laid down in English Law merchant. The main object of this Act was to do away with the inconsistencies existing prior to its enforcement especially with regard to applicability of law of Negotiation to persons belonging to different communities.

CHAPTER II: RESEARCH METHODOLOGY: It is an important part of social legal survey/research that is research methodology for which we have to go through in a following manner."There is no shortcut to prove, no way to gain knowledge of universal science, except through the scientific method" Karl Pearson'. Methodology is an important part of any research work. Method is the way of doing something. Methodology is science to study of particular subject. Research Methodology is a systematic investigation to gain new knowledge about the phenomena or problem but in its wider sense methodology includes the philosophy and practice of whole research process. It provides standard which the researcher used for integrating data and reaching the conclusion. Thus research methodology is the method which the researcher applies for the said research. The present study well based on doctrinal method. The study will be completed on the study of various law books. For the purpose of data collection the researcher will visit law libraries, refer various law journals like, All India Reporter, All Supreme Court cases, Maharashtra Law Journal, Maharashtra Law Report, Internet Service etc.As mentioned earlier, a scholar of law, interested in legal research, may adopt any of the following courses in doing his research:1. Doctrinal method2. Non doctrinal methodDoctrinal legal research endeavors to develop theories, and non-doctrinal legal research endeavors to see as to whether the theories, the doctrines, that we have assumed are appropriate to apply in society at a given time, are still valid and relevant. Non-doctrinal legal research helps to test whether the theories assumed (in chilot.wordpress.com these broad five options available to a legal scholar can be divided into two broad categories of legal research: (1) doctrinal legal research, and (2) non-doctrinal regal research. Doctrinal legal research is defined as research into legal doctrines through analysis of statutory provisions and cases by the application of power of reasoning. It gives emphasis on analysis of legal rules, principles or doctrines. While non-doctrinal legal research is defined as research into relationship of law with other behavioral sciences. It gives prominence to relationship of law with people, social values and social institutions. It endeavors to highlight the relationship between law and other behavioral sciences and social facts. It involves empirical inquiry into the operation of law. Here inquiry is directed to some manifestation of human behavior as law affects it or as it affects law. The researcher wants to know to what extent certain legal rules work or have worked. Law) work in the way they should. Doctrinal legal research is, therefore, research in law while non-doctrinal legal research is research about law. It involves a systematic exposition, analysis and critical evaluation of legal rules, doctrines or concepts, their conceptual bases, and inter-relationship. To put it in a different way, a doctrinal legal researcher indulges into analysis of black-letter of law. He therefore sticks pretty close to the primary source materials, to the Constitution (where legal system have one), to legislation (statutes, statutory instruments) and to the leading judicial decisions (the precedents). While a non-doctrinal legal researcher is interested in knowing law-in-action through empiricism. As the place and source of data, namely, substantive legal rules, doctrines, or concepts and judicial decisions thereon, required for doctrinal legal research is law library, doctrinal legal research is nicknamed as arm-chair research, or basic or fundamental research. While, non-doctrinal legal research, which gets its data primarily from sources other than law [i.e. society] and focuses on social reality of law rather than on law itself, is also known as empirical research, socio-legal research, sociology of law or non-library research.

2.1 Title of the study: The title of the study must be precise and unambiguous. That means the title must give full idea of topic at the first instance which is about to discuss. Hence the title of the study is Legal analysis of protection available to holder of cheque under the Negotiable Instruments Act, 1881 with decided case laws.

2.2 Problem of the study:The major problem of the study is that the existing law had proved inadequate with the problem which has arisen in recent years.Those people who are holder of cheque in due course have no knowledge in respect of limitation for presentation of cheque for encashment and they have also no knowledge regarding issue of legal notice with in stipulated period. They have also no knowledge regarding filing of complain in the court of law and its limitation. By keeping in this fact the legislature with the help of negotiable instrument act 1881 has amended penal provisions and provisions for limitation and jurisdiction. By going through this provision a common public can get some knowledge of penal provision under negotiable instrument act 1881 and its limitations.That though there is existing provision in Negotiable Instrument Act for dishonor of cheque, still there deficient in dealing with cheque bouncing cases relating to the post-dated cheques legal liability and limitation for it and not only the punishment provided in the act has found to be inadequate and the procedure for filing the complaint has been found to be cumbersome including conflicting opinions for judiciary. This growing problem of dishonor of cheques in todays century attracted me to the research on the main following two points:

1. Whether the presumption enacted by the N.I. act in favour of the holder of cheques under the various provisions is adequate in order to obtain the full justice in his favour.2. Whether the Apex court has provide the full protection of presumption in favour of the holder of cheque from all other angles of the act by its various landmark judgments.

2.3 Rational of study:The intention of the legislature is to see that in the event of amount not being paid on presenting the cheque due to insufficiency of funds or if it exceeds the arrangement made by the bank by an agreement such as obtaining the facility of overdraft etc. the person is liable for prosecution.The safeguard that has been made to present hasty action is that the payee or holder in due course of the cheque shall make demand for the payment of amount covered by the cheque by giving notice, in writing, to the drawer with in thirty days of the receipt of information by him from bank.The rationale behind the study is to know the provisions under Negotiable Instrument Act 1881 and consequences if the limitation provided for presentation of cheque bounce notice and the complaint is not filed within limitation.

2.4 Objective of the Study:

The objectives of project aims at studying the various aspects related to dishonour of cheques and liability arising for the protection of holder of cheques. It begins by defining the concept of dishonour of cheques and then proceeds to the liability arising out of such dishonour and the laws related thereto. The ultimate objective is to understand the liability and the penal provisions for dishonour of cheques and then to understand its application in the protection for the cheque holder. While going through the research topic that means Legal analysis of protection available to holder of cheque under the Negotiable Instruments Act, 1881 with decided case laws following are the objectives of the research.1. To find out ways and means for effective implementation of the relevant provisions of law so that the cases relating to dishonour of cheque can be disposed of within the time frame prescribed by law2. To study the provision for the dishonour of cheques.3. To study the procedure of complaint as provided under Negotiable Instrument Act 1881.4. To study the offence and penalties in case of dishonor of cheques.5. To study the role of Supreme Court in respect of dishonor of postdated cheque under Negotiable Instrument Act.6. To study Law Relating to Negotiable Instruments with Special reference to the protection of holder of cheques.2.5 Hypothesis:Hypothesis means an idea formed beforehand which has less value that the generally considered as the principal instrument in research. Its main function is to suggest a new experiment and observation.According to Goods and Hatt Hypothesis is proposition which can be put to test or determine its validity The present study proceed on the following hypothesis they are, the provision under Negotiable Instrument Act 1881 is in corporate with a view to encourage the culture of us for cheques and enhancing the credibility of the instrument.1. The punishment provide in the act has proved to be inadequate.2. The procedure prescribed for the courts to deal with such matter has been cumbersome.3. The disputes under section 138 of the Negotiable Instrument Act are not nearly involving the interests commercial circle/economy of globe.4. Large population, more litigation and lack of adequate infrastructure are the major factors that hamper our justice system.5. The procedure as required u/s 138 of Negotiable Instrument Act 1881 is not followed properly and the complaint becomes absurd.

2.6 Review of Literature:While finalizing to the topic, the researcher has to review the existing literature. In this present research the researcher has gone through the books of eminent authors related to these topics. In addition to this the researcher has also review Law journals, AIR, Supreme Court cases, articles from newspaper reports on Dishonor of cheque.Thus, after reviewing the literature, the researcher has able to understand the exact nature of the problem of dishonor of cheque u/s 138 of Negotiable Instrument Act 1881.2.7 Research Design: The research design refers to the entire process and carrying out the research study. The idealized research design is concerned with specifying the optimum research procedure that could be followed where there are no practical restrictions. The research design for this study is Doctrinal. The data for this study was collected from the books, commentaries, journals and websites.After defining a research problem or formulating a hypothesis, as the case may be, the researcher has to work out a design for the study. Research design is the conceptual structure within which research is conducted. It is a logical systematic planning of research. The term research design refers to the entire process of planning and carrying out a research study. It is the process of visualization of the entire process of conducting empirical research before its commencement. Research design is a blue print of the proposed research. However, the blue print is tentative as the researcher may not be able to foresee all the contingencies before he starts his investigation. He is allowed to meet these contingencies when he encounters them in his research journey. Research design helps the researcher to identify in advance the kind of data he requires, the means to collect them, the methods to be used for analysis and interpretation of the data, and presentation of his findings with more accuracy. Research design, thus, helps him in minimizing the uncertainties, confusion and practical hazards associated with the research problem. It helps in enhancing efficiency and reliability of his findingsa) Nature of study :The present study is Doctrinal or Non empirical legal research. The nature of study is doctrinal legal propositions by analyzing the existing statutory provisions, and available secondary sources of data. One of the reasons for doctrinal research is to ascertain a rule for the purpose of shoving a problem. In the present topic Law Relating to Negotiable Instruments with Special reference to cheques. The researcher had made an attempt to analyze the provisions under Negotiable Instruments act 1881 for dishonor of cheque for this purpose the researcher had gone through various secondary sources of data. The research design refers to the entire process and carrying out the research study. The idealized research design is concerned with specifying the optimum research procedure that could be followed where there are no practical restrictions. The research design for this study is Doctrinal. The data for this study was collected from the books, commentaries, journals and websites.b) Type of studyThe present study is basically explanatory as it explains in details the various aspects of the topic in detail. To explain various aspects and dimensions of the topic, the researcher had segregated the topic in six different chapters; each chapter explains in details the important aspect of the topic.The present study on the topic Legal analysis of protection available to holder of cheque under the Negotiable Instruments Act, 1881 with decided case laws is also analytical in nature as it analyzes different aspects of the topic and after analyzing significant issues and aspects of the topic, the researcher had made various conclusions and have suggested various point to solve the problem.

2.8 Method of Data Collection.The method of data collection followed under the present study are secondary method of data collection, because the present researcher doctrinal researcher. Therefore the researcher had gone through various secondary sources of data by adopting secondary method of data collection. The researcher had gone through various books in relation to provisions for the protection of holder of cheque, referred to articles, searched on internet for collecting matters in relation to the topic.

Sources of data collectionThe present dissertation on the topic Legal analysis of protection available to holder of cheque under the Negotiable Instruments Act, 1881 with decided case laws. is doctrinal in nature therefore the sources of data collection is secondary in nature the researcher had gone through various books pertaining to negotiable instrument act, the details of which are given in the bibliography. The researcher had also gone through various cases related with the topic, thereafter the research had done intensive search on the internet for collecting and downloading matter pertaining to the present topic. Analysis and interpretation of dataIn order to include best matter in the present dissertation, the researcher at the first instance had collected every possible information related to the topic from books, Journals, websites etc, thereafter the researcher and analyzed the complete data and had kept the relevant text with him and had left the unnecessary materials. For better analysis also classified the data and segregated the data in various categories, having done so, the researcher had then interpreted the relevant data. Interpretation is a special aspect of analysis. Interpretation includes the cause and effect relationship interpretation of data is very important aspect as it is the soul of any research.

2.9 Possible contribution of the study: As the researcher uses the Doctrinal (Non Empirial Method) to complete the research work, will be really helpful for the researcher to collect the data from various available sources and complete the dissertation work. The researcher took every possible efforts to complete the dissertation. The present topic of Legal analysis of protection available to holder of cheque under the Negotiable Instruments Act, 1881 with decided case laws would help in providing solutions to combat with the controversial issues of cheque bounce.

2.10 Limitations of the study: Every research has its own limitation. No research can be conducted completely in all aspects within limited period of time.The present topic Legal analysis of protection available to holder of cheque under the Negotiable Instruments Act, 1881 with decided case laws has lot of dimensions and perspectives It was not possible to cover all the dimensions and prospective taking into consideration within the time limit of the study, so the researcher had mainly emphasized on the provisions for the protection of holder of cheque i.e dishonor of cheque in NI act. The other difficulties faced by the researcher was cost involved in coaching the research some books were of very high prices which the researcher could not afford to buy or have access to it.

2.11 Time Schedule:The researcher is doing doctrinal research and it needs sufficient time to complete the research work within stipulated time as mention in the syllabus.

CHAPTER III: DISHONOUR OF CHEQUE AND ITS PROCEDURE

3.1 DISHONOUR OF CHEQUE- The legal machinery relating to the dishonour of a cheque comes into motion for the protection of holder of cheque if cheque is dishonoured. The concept of dishonour has first to be considered and for this purpose refer sections 92 and 93of the Negotiable Instruments Act, 1881. Section 92 reads under asDishonour by non-payment.-A promissory note, bill of exchange or cheque is said to be dishonoured by non-payment when the maker of the note, acceptor of the bill or drawee of the cheque makes default in payment upon being duly required to pay the same.[footnoteRef:31] [31: The Negotiable instrument act 1881]

The advancement and progress of society and the increase of commerce and various activities of trade, the transaction of money between human beings became complex and the ancient law giver were also forced by the circumstances to evolve new rules and regulations to regulate the transaction of money. The present day economies of the world which are functioning beyond the international boundaries are relying to a very great extent on the mechanism of the Negotiable Instruments such as cheques and bank drafts and also the oriental bill of exchange prevalent in India and known as Hundies. Since business activities have increased, the attempt to commit crimes and indulge in activities for making easy money has also increased. Thus besides civil law, an important development both, in internal and external trade is the growth of crimes and we find that banking transactions and banking business is every day being confronted with criminal actions and this has led to an increase in the number of criminal cases relating to or concerned with the Banking transactions.

Section 138 of the Negotiable Instruments Act, 1881 and its Significance:Section 138 of the Negotiable Instruments Act is a pragmatic legislative step to reach justice to the aggrieved. This section was introduced by the legislature to protect the holder of cheque who were victims of dishonour of cheques. This section basically provides for Dishonour of cheques for insufficiency etc., of funds in the account. As per Sec 138 if under any circumstance the cheque issued by the drawer of the cheque is dishonoured or it bounces back due to lack of funds in the account of the drawer or for the reason that it exceeds the arrangements made by the drawer with the bank then the drawer of cheque is liable for such dishonour. The signifance of Section 138 can be proved from the fact that it not only provides justice to the payee in case of dishonour of cheques but it also gives a chance to the honest drawers to rectify their actions in case of negligent behaviour so as to protect them from the clutches of law and to prevent their harassment at the hands of law. It can be said that Section 138 is a provision which clothes a civil dispute with the garment of criminality.

3.2 CAUSES OF DISHONOUR OF A CHEQUE

There are some reasons of dishonour of cheques, which are being discussed below: A. Refer to Drawer In Thomsons Dictionary of Banking it is stated that the answer put upon a cheque by the drawee banker when dishonouring a cheque in certain circumstances. The most usual circumstance is where the drawer has no available funds for payment or has exceeded any arrangement for accommodation. The use of the phrase is not confined to this case, however, it is the proper answer to put on a cheque which is being returned on account of service of a garnishee order; it is likewise properly used where a cheque is returned on account of the drawer being involved in bankruptcy proceedings.It generally means to convey to the holder that he should refer to the drawer for payment that is the bank has not sufficient funds at drawers disposal to honour the cheque.According to A Dictionary of International Banking by Dr. S. Ramalingam the drawee bank uses the words when it returns a cheque because the drawer has insufficient funds in his account to meet it. If a cheque is retuned with an endorsement refer to drawer it cannot be safely interpreted to mean any of the two reasons contemplated under the Act. This question was raised in V.S. Krishnan v. Narayanan[footnoteRef:32], bringing the decision of the Kings Bench in Plunkett v. Barclays Bank Ltd[footnoteRef:33], to the notice of the court it was said [32: 1990 (1) MWN (Cr) Mad 75: 1990 LW (Cr) 66. ] [33: (1936) 2 KB 107: (1936) 1 All ER 653: 154 LT 465. ]

The offence under section 138 of the Negotiable Instruments Act will be attracted only if the cheque 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 for from the account by an agreement made with the bank. Sometimes it is also suggested that the reasons, Exceeds Arrangement or Not arranged for may lead to an unwarranted disclosure of the customers account and may amount to a libel. For this reason the term Refer to Drawer should be preferred. In other case Jaya Lakshmi v. Rashida,[footnoteRef:34] the Court held that the endorsement refer to drawer is a euphemistic way of informing the payee that the drawer of the cheque has got no amount to his credit to honour the cheque. Similarly in Manohar v. Mahalingam,[footnoteRef:35] Justice Padmini Jesudurai has held that the answer Refer to Drawer after adopted by the bankers could mean anything from shortage of funds to death or insolvency of the drawer and could also include insufficiency of funds. It is seen therefore, that the nomenclature of the return by itself would not be decisive of the cause of return. Reference may also be made to M.M.Malik v. Prem Kumar Goyal,[footnoteRef:36] decided by Punjab and Haryana High court. [34: I (1992) BC 259: (Vol. 74) Comp Cas (Mad) 841: 1992(2) Crimes 5: 1993 Bank J 378: (1991) (2) MWN (CN) 202.] [35: (1992) LW Cri 367 ] [36: II (1991) BC 484: 1991 Cri L.J. 2594]

In this case M.Shreemulu Reddy v. N.C. Ramasamy,[footnoteRef:37] in which it was held that whether endorsement Refer to Drawer made out an offence was a question of fact to be established on evidence and to establish that return of the cheque implied insufficiency of funds in the account. There had to be the appreciation of evidence. We can also refer to the case V.S.Krishnan v. Narayanan,[footnoteRef:38] where it was held that in banking parlance the reasons Refer to Drawer when cheques are returned unpaid is used generally for returning the cheque for want of funds in the drawers account or because of service of a garnishee order. This again is a matter of evidence. The bank would be able to justify before the Court the reasons for which the cheque was returned. Reference can also be made to a number of other cases such as [37: 79 CC (1994) 540: I (1993) BC 8] [38: (1990) LW Cri 66: 1991 Cri J. 609 ]

In A.D. Circle Pvt. Ltd. v. Shri Shanker, [footnoteRef:39]before the Delhi High Court held that where the cheque had been returned with the remarks Refer to Drawer complaint was dismissed. However, the High Court held that close scrutiny of record and evidence shows that the cheque was dishonoured for insufficient of funds and the offence was committed. [39: II (1992) BC 525: 76 Comp Cas Delhi 764 ]

A Division Bench of the Kerala High Court has held that such endorsements as Refer to Drawer, Account Closed and Payment has been stopped etc. have the effect of proving that the cheque has been bounced and if the bouncing was on account of insufficiency of funds, then an offence under Section 138 of the Negotiable Instruments Act has been made out[footnoteRef:40]. [40: Thomas Verghese v. Jerome, (1992) BC 224(DB): 1992 Cri. LJ 308: 76 Comp Cas (Kerala) 684 ]

There are a number of other cases as well to which a reference can be made and which clearly establish that Refer to Drawer means insufficiency of funds. Refer to Drawer is only a courteous way normally adopted by Banker to show its inability to honour the cheque for want of funds. If the Petitioner Company had the arrangement or credit in its account with the bank, he can show this fact to the Trial Court, in the absence of which Refer to Drawer means Insufficiency of funds. Refer to Drawer in their ordinary meaning amounted to a statement by the Bank- We are not paying, go back to the drawer and ask him why.[footnoteRef:41] [41: M.M.Malik v. Prem Kumar Goyal, II (1991) BC 484: 1991 Cri L.J. 2594]

Refer to Drawer means cheque has been returned for want of funds.[footnoteRef:42] [42: Syed Rasool & Sons v. Aildas & Co., 1992 Cri L.J. 4048: 1993(II) Crimes 550: (1993) 78 Comp Cas. 738]

Similarly the Trial Court had dismissed the complaint on the ground that the term Refer to Drawer is vague and does not disclose insufficiency of funds. The High Court held that the Learned Magistrate should have given the Petitioner to lead pre-charge evidence to prove that cheque was returned for paucity of funds.[footnoteRef:43] In Dada Silk Mils and others v. Indian Overseas Bank and another[footnoteRef:44], it has been held by the Gujarat High Court that the endorsement refer to drawer, necessarily in banking parlance means that the cheque has been returned for want of funds in the account of the drawer of the cheque. [43: 29 Prof. Veda Vyasa v. Satija Builders & Financiers Ltd., II (1992) BC 146] [44: 30 (1995) 82 Comp. Cas 35]

B. Exceeds arrangement It is generally meant to convey that the drawer has credit limit but the amount exceeds the drawing power. Not arranged means no overdraft facility exceeding the limit already sanctioned or overdraft facility not sanctioned.

C. Effects not cleared According to Thomsons Dictionary of Banking, owing to the exigencies of business, the bankers usually credit articles paid in for collection to a customers account, before clearance thereof. In some cases items are entered in the ledger and statement as Cash; in other cases they are indicated by symbols. If there is an agreement express or implied such as would arise out of a course of business to pay against uncleared effects, a banker would be bound to honour cheques drawn against such effects and he cannot arbitrarily and without notice withdraw such facilities. It is generally meant to convey that the drawer has paid the cheques or bills, which are in course of collection but their proceeds are not available for meeting the cheque. According to A Dictionary of Bank by F.E. Perry, the total of cheques collected for a customer, which is credited to his account on the day he pays them in. The proceeds remain uncleared for three days, or five if a week end intervenes. During this time the bank is presenting the cheques to the paying banks through the clearinghouse. If they are unpaid they should be received back through the post on the morning of the forth (or sixth) day. (Town clearing cheques are cleared more quickly.) Whether or not the customer is allowed to draw against the proceeds of these cheques before they are cleared is a question of fact in each case, but the banker does not have to pay against uncleared effects unless he so wishes. If he does so, however, he may encourage the customer to think that similar concessions may be made on future occasions, and an implied permission may be construed.

D. Full Cover not Received It is generally meant to convey adequate funds to honour the cheque or has not given adequate security to cover the overdraft which might be created by paying the cheque.

E. Not Provided for An answer sometimes written by a banker on a cheque, which is being returned unpaid for the reason that the drawer has failed to provide funds to meet it. A better answer in these circumstances is Refer to Drawer.

F. Not Sufficient- When the funds in a customers account are insufficient to meet a cheque, which has been presented to the banker through the clearing or otherwise, the cheque, on being returned unpaid, is sometimes marked with the words not sufficient, or not sufficient funds. The answer Refer to drawer is preferable.

G. Present Again According to Thomsons Dictionary of Banking, these words are sometimes written by a banker upon a cheque, which is returned unpaid because of insufficient funds in the customers account to meet it. It is not, however, by itself a correct answer to give, as it does not afford any explanation why the cheque has been returned. The best answer to write upon a dishonoured cheque is Refer to Drawer. Sometimes the words are joined with another answer, as Refer to Drawer Present again, Not sufficient- Present again. No doubt the words Present again are used with the idea of minimising the risk of injury to the drawers credit by returning the cheque, but it is perhaps questionable whether they are altogether prudent words to use. The banker to whom a cheque is returned with a request Present again advises his customer of the dishonour of the cheque and arranges for it to be represented.

H. Payment Stopped by Drawer One of the reasons on account of which the Banker can refuse to make the payment of a cheque is that the drawer has stopped the payment. The customer has the right to give notice his Bankers to stop payment of a cheque which he has issued. The notice should be in writing and should give accurate particulars of the ch