Dishonor of Cheque and Requirements for the Offence

August 24, 2022
justice brown

By Nihit Nagpal and Devika Mehra

The Hon’ble Meghalaya High Court at Shillong vide its order dated May 13, 2022 in the matter of HDFC Bank Ltd. Mawlai Nonglum Branch & Anr v. Sri Baklai Siej & Anr.[1] has reiterated that for an offence of dishonor of cheque under Section 138 of the Negotiable Instruments Act, 1881 to be made out, the dishonoured cheque must have been issued by the account holder under his name and signature.

Brief facts of the case

  • The Respondent had filed a complaint under Section 138 read with Section 142 of the Negotiable Instruments Act, 1881 before the Court of the Chief Judicial Magistrate, Shillong, with a prayer to initiate action against the accused persons therein under the said provisions of the Negotiable Instruments Act for an alleged case of cheque bouncing, with regard to a cheque for ₹ 1, 00,000/- drawn on HDFC Bank, Mawlai Nonglum Branch. The Respondent had then visited the HDFC Bank, Police Bazar Branch, Shillong to find that the said amount had reverted to the issuer’s bank account.
  • The Hon’ble Meghalaya High Court at Shillong vide its order dated May 13, 2022 in the matter of HDFC Bank Ltd. Mawlai Nonglum Branch & Anr v. Sri Baklai Siej & Anr.[1] has reiterated that for an offence under Section 138 of the Negotiable Instruments Act, 1881 to be made out, the dishonoured cheque must have been issued by the account holder under his name and signature.
  • The Respondent had filed a complaint under Section 138 read with Section 142 of the Negotiable Instruments Act, 1881 before the Court of the Chief Judicial Magistrate, Shillong, with a prayer to initiate action against the accused persons therein under the said provisions of the Negotiable Instruments Act for an alleged case of cheque bouncing, with regard to a cheque for ₹ 1, 00,000/- drawn on HDFC Bank, Mawlai Nonglum Branch. The Respondent had then visited the HDFC Bank, Police Bazar Branch, Shillong to find that the said amount had reverted to the issuer’s bank account.
  • The Judicial Magistrate First Class, on perusal of the statement, directed that summons be issued to the accused persons therein. Aggrieved by the said order, the petitioners herein have approached the Hon’ble Meghalaya High Court under Section 482 of the Criminal Procedure Code, 1973, with a prayer to quash the criminal proceedings against them.

Judgment by the Hon’ble High Court of Meghalaya

The Hon’ble Meghalaya High Court observed that the essential ingredients of the offence of dishonor of cheque under of Section 138 of the Negotiable Instruments Act, 1881, can be said to be the following:-

  • that a cheque was drawn by a person on an account maintained by him for payment of money to another for the discharge of any debts or liabilities;
  • that the said cheque has been presented to the bank of the drawee within a period of three months;
  • That the cheque was returned by the bank unpaid due to insufficiency of funds, or that it exceeds that amount arranged to be paid from that account by an agreement made by the bank.
  • that the payee makes a demand for the payment of the money from the drawer of the said cheque, such demand being made within fifteen days from the date that said cheque was refused to be honored; and
  • that the drawer fails to make payment to the payee within fifteen days from the date of receipt of the notice.

In the case of Alka Khandu Afhad v. Amar Syamprasad Mishra & Anr,[2] the Hon’ble Supreme Court (at paragraph 16) has observed that only a person who is the signatory to his cheque and such cheque having been returned by the bank unpaid can be said to have committed an offence under Section 138 of the Negotiable Instruments Act, 1881. This section does not speak about joint liability, even in case of a joint liability, in case of individual persons, a person other than a person who has drawn a cheque on an account maintained by him cannot be persecuted for an offence under Section 138 of the Negotiable Instruments Act, 1881, unless the bank account is jointly maintained and that he was a signatory to the cheque. That is to say, this case, despite involving joint liability, only clarifies the position with respect to individuals, wherein a person who has not drawn the impugned instrument, or is not the holder of the relevant account, cannot be held liable in the case.

In the present case, the petitioner/HDFC Bank has been made a party by the complainant/Respondent No. 1 where no role can be attributed to the bank as far as the issuance or the dishonor of cheque in question is concerned. The bank is only the custodian of the money of the customers and has to comply with the instructions of such customers. In case of insufficiency of funds, the bank is only to report the same and as such, cannot, by any stretch of the imagination, be held liable for any act of the customer who has issued the cheque which was later dishonoured.

Therefore, Hon’ble Meghalaya High Court quashed the proceeding against the petitioner/HDFC Bank in C.R. Case No. 182(S) of 2020 under Sections 138 and 142 of the Negotiable Instruments Act, 1881 pending before Judicial Magistrate First Class.

Conclusion

It is clear that only the holder of the account on which the cheque is drawn can be made liable and such culpability cannot be extended to others except as provided under Section 141 of the Negotiable Instruments Act, 1881 which deals with offences by and on behalf of the company or partnership, where the signatory to the cheque may be a Director of the company or a Partner of a partnership firm. In the present case, no role could be attributed to HDFC Bank for either issuance or dishonor of cheque, being only the custodian of the money of the customers and who has to comply with the instructions of such customers.

[1] Crl.Petn. No. 16 of 2021 with Crl.Petn. No. 18 of 2021

[2] 2021 SCC Online SC 189

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