Analysis of Legal Challenges in Negotiable Instruments Act
First, we will go over a brief history of this act and attempt to trace its origins. We will then go over the various major amendments that have transpired up to this point. We will look at what the current obstacles and issues are under the Negotiable Instruments Act. We'll look at what loopholes exist in the act's various clauses, as well as what steps the country's courts have taken to fill in the gaps. We'll take a look at some of the most important recent decisions of various courts simultaneously and We shall attempt to respond to some of the questions posed by the nation's collective conscience. There are three important instruments that are heavily regulated under the act, namely, promissory notes, bills of exchange, and cheques. This article focuses primarily on one of the instruments, that is cheques.
I. Introduction
The Negotiable Instruments Act is a commercial law and it was brought into to force to legislate the activities done within the purview of trade and commerce. This Act made provisions which sanctioned certain credit instruments, which could be easily converted to money and transferred from a person to another. Prior to the implementation of this act, the trading community had difficulty dealing with large amounts of cash due to the lack of credit instruments. As a result, India incorporated the English common law of negotiable instruments.
The main objective of this legislation was to create a legal framework that would allow people to execute large transactions by exchanging a single document or instrument instead of large amounts of cash.
This law in India is contained in the negotiable instruments act, 1881. This act aims to provide a definition and make amendments to the laws relating to Bills of Exchange, Promissory Notes and Cheques and certain provisions of this act are also applicable to hundis and other instruments like Treasury Bills, Bearer debentures etc. The applicability of this act is confined within the territory of India.
II. Meaning of negotiable instrument
According to Section 13 (a) of the Act, a “negotiable instrument” is defined as “a promissory note, bill of exchange, or cheque payable either to order or to bearer, whether or not the words “order” or “bearer” appear on the instrument.
Negotiable instruments are documents that can be exchanged from one person to another without difficulty. It's a document that establishes a right for the benefit of individuals and can be freely transferred.
Though the Act specifies only three types of instruments, such as promissory notes, bills of exchange, and cheque, it is not exhaustive and allows for the addition of any other instrument as long as these conditions are met: (a) the instrument must be freely transferable; (b) the person who obtains it in good faith and for value must receive it free of all defects; and (c) the person who obtains it in good faith and for value must receive it free of all defects.
III. Cheque
Section 6 of the Act defines “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.2
It is considered that cheque is a Bill of Exchange due to similar characteristics, hence two important essentials thereto are, (i) it is always drawn on a specified banker, and (ii) it is always payable on demand. Here, a cheque can be used as bill of exchange, but a bill of exchange cannot be used as a cheque. And that is why it is very important that a cheque must consist all the essential features of a bill of exchange. The essentials are as following; first, it must be duly signed by the drawer. Second, it shall must be drawn on a on a specified banker. Third, it must be reimbursable on demand. These mentioned features are essential to distinguish a cheque from bill.
IV. Amendments, issues and challenges in the NI Act
Courts in India are overburdened with a plethora of pending cases, with nearly 20% of the pending cases relating to cheque dishonour disputes under Section 138 of the Negotiable Instruments Act, 1881. Despite the fact that amendments have been made by governments with the assistance of courts, they have not been able to address all of the problems. The major amendments that have taken place are following:
1. Negotiable Instruments (Amendment and miscellaneous Provisions) Act, 2002
2. Negotiable Instruments (Amendment) Act, 2015.
3. Negotiable Instruments (Amendment) Act, 2018.
Issue - Jurisdiction for filing of cases
The 2015 amendment concerned clarification of the jurisdiction relating to issues related to the filing of offences committed in accordance with section 138 of the Act.
In the case of K.Bhaskaran v. Sankaran Vaidhyan Balan3, the Hon’ble Supreme Court after aptly Considering S.177, 178 and 179 of CrPc, decided that the territorial jurisdiction in cases of S.138 of the NI Act, could be established on the basis of five considerations, which are as follows:
- Drawing of the cheque
- Representation of the cheque to the bank
- Returning the cheque unpaid by the drawee bank
- Giving notice in writing to the drawer of the cheque demanding payment of the cheque amount
- Failure of the drawer to make payment within 15 days of receipt of notice.
Though the decision of the (supra) K.bhaskaran case was overruled in the case of Dashrath Rupsingh Rathod v. State of Maharashtra4, the Hon’ble Supreme court held that a complaint of cheque dishonour can only be filed in the court with jurisdiction over the location where the cheque is dishonoured by the bank on which it is drawn. And inserted S.142(2) and S.142 A in the NI Act by the amendment of 2015.
According to section 142 (2), the offence under section 138 may only be investigated and tried by the court that has local jurisdiction over (a) the branch of the bank where the payee or holder, as the case may be, maintains the account; or (b) the payee or holder, as the case may be, presents the cheque for payment to the court5.
In summary, S.142 A stipulates that all pending matters in any court, whether filed or transferred, dated before June 15, 2015, be transferred to a competent court with jurisdiction in accordance with S.142 (2). When the payee or holder files a complaint against the Drawer in a court of competent jurisdiction in a timely manner under S.142(2), all subsequent complaints against the Drawer must be filed in the same court, regardless of whether the cheque is presented or delivered to a bank for collection within the local jurisdiction of the court where the complaint was filed.
Although the 2015 amendments seem to have positive intentions, the regulations have caused extra uncertainty and difficulty, as complaints that have been accepted regardless of the stage of the proceeding will be returned to the court with competent jurisdiction to be resubmitted as prescribed by the ordinance.
Issue – Undue delay, lack of efficacy and efficiency in cases related to dishonor of cheque
The Central Government integrated several new provisions in the Negotiable Instrument (Amendment) Act 2018 that were aimed at addressing the issue of undue delay, efficacy, and efficiency in cases of cheque dishonor. To address these issues, the Government introduced two amendments in 2018 by inserting sections S.143 A and S.148 into the Negotiable Instrument Act.
Pursuant to Section 143 A of the amendment act, the court can now order the drawer to pay a provisional or interim compensation to the complainant while trying any case of cheque dishonor under Section 143 A of the amendment act. This change is made to Section 138 of the act, which deals with cheque bounces where there is insufficient money in the account or the amount written on the cheque exceeds the amount to be paid.
In summary trials and summons cases when the drawer pleads not guilty and upon the formulation of any other accusation, the court now has the power to grant interim compensation under this amendment. The amount of compensation payable as per the amendment cannot exceed 20% of the amount stated on the cheque. The amount must be paid within 60 days of the date of the court's order, or within an extended term of 30 days if the court finds reasonable grounds for the delay. Furthermore, if the complaint is given ultimate compensation at the conclusion of the lawsuit, it will be done after deducting the interim compensation.
According to Section 148, the protection provided in Section 143A of the amendment act also extends during the period of appeal, and S.148 provides that if a drawer is convicted and appeals to a higher court, the appellant court has the power to order the drawer of the cheque to deposit an amount equal to at least 20% of the fine or compensation.
Issue – what is the purpose of payment while drawing a cheque?
In year 2018, the Supreme Court asked the Reserve Bank of India to include a new methodology of cheque, so that the purpose of payment along with other information related to the matters can be ascertained efficiently.
In case of Makwana Mangaldas Tulsidas v. The State of Gujarat & Anr6., it was held that additionally, it's important to prevent the misuse of cheques, which could lead a frivolous lawsuit. So that real issues can be adjudicated more easily, the Reserve Bank of India may consider developing a new proforma of chequs that would include the intent of payment along with the other details provided.
Issue – whether the person having power of attorney(agent) can register a complaint on behalf of the principal
In the case of Narayanan v. State of Maharashtra7 it was pointed out that the agent of the principal is the person who holds power of attorney. The principal has given the attorney holder authority to act on his or her behalf. The principal can grant legal rights to the attorney holder, such as the ability to start legal processes, close agreements, and so on. However, the attorney can only start a suit or file a complaint in the principal's name. As a result, it was decided in this case that an attorney (agent) who is legally competent and has the capacity can submit a complaint or suit on behalf of the principal under section 138 of the NI Act.
Issue – whether the accused can give evidence on affidavit for a case under section 138 of NI Act
In the case of Geemol Joseph v. Kousthabhan8, it was held that an accused, in a case brought against him under Section 138 of the Act, is not entitled to testify on affidavit.' There is no right to testify on affidavit under section 145(1) of the Act. An accused person does not have the same right as a complainant to introduce evidence by affidavit in lieu of a primary examination."
Issue – Will a blank cheque attract the provisions of section 139 of NI Act?
In Bir Singh v. Mukesh Kumar9, where the court held that without any relevant documentation to prove that the check was not delivered in release of an obligation, even a blank cheque, purposefully marked and given over by the accused, which is towards any instalment, would draw in assumption under Section 139 of the Negotiable Instruments Act.
V. The object of chapter XVII of the NI Act
In Meters and Instruments (P) Ltd. v. Kanchan Mehta10, After considering the purpose of introducing Section 138 and other provisions of Chapter XVII of the Act, the Honourable Supreme Court observed that the purpose of the provision is primarily compensatory, the punitive element is primarily with the purpose of enforcing the compensatory element, compounding at the initial stage must be encouraged but is not prohibited at a later stage subject to certain conditions. The procedure for the trial of cases under Chapter XVII of the Act is normally brief, with the goal of awarding appropriate compensation with a default sentence under Section 64 IPC and additional powers of recovery under Section 431 CrPc. Because evidence of the complaint could be provided on affidavit, subject to both the Court summoning and examining the person giving the affidavit, and the bank's slip being prima facie evidence of cheque dishonour, the Magistrate does not need to record any further preliminary evidence. Affidavit evidence can be used as evidence at any stage of a trial or other legal proceeding. Section 264 CrPc allows for the examination of the person providing the affidavit. The scheme will follow summary procedure except where the exercise of power under Section 143's second proviso is required, where a one-year sentence may be imposed and compensation under Section 357 is deemed insufficient, taking into account the amount of the cheque, the accused's financial capacity, and the accused's conduct, or any other situations.
Issue – Presumption available under section 139, at what stage can be rebutted?
In the case of Shiv Kumar v. Ramavtar Agarwal11 it was held that, Section 139 of the NI Act provides a presumption that must be rebutted, and that rebuttal can only be done after evidence has been presented. This, in and of itself, demonstrates that the rebuttal presumption cannot be considered when the Court takes cognizance of the offence and registers the case. All that the Court would have to consider is whether there is a prima facie case that meets the conditions precedent set out in Section 138 of the NI Act, which, in this case, the Respondent has met, in this Court's opinion.
Issue – Statement made by the accused u/s 313 of Crpc would amount to evidence?
In the case of Sumeti Vij v. Paramount Tech Fab Industries12, it was held that, a presumption is generated under Section 139 of the Act that the holder of a cheque received the cheque for the discharge, in whole or in part, of any debt or other liability. To refute this assumption, the accused must present facts that must be proven by a preponderance of the evidence (rather than beyond a reasonable doubt, as in the case of criminal offences), according to the court. The accused's statement recorded under Section 313 of the Code is not significant defence evidence, but rather an opportunity for the accused to explain the incriminating circumstances that surfaced in the prosecution case. As a result, there is no proof to refute the suspicion that the checks were forged.
Conclusion
We examine the needs that compelled the courts and the government to implement major changes in the law as we follow the history and evolution of the Negotiable Instruments Act, 1881, and focus on the jurisdictional issue under section 138, which deals with cheque dishonour. The ordinance has the legal effect that, in order to file a complaint under Section 138, the complaint must be filed at the following location: if the cheque is delivered for collection through an account, the branch of the bank where the payee or holder maintains the account; or if the cheque is presented for payment by the payee or holder otherwise through his account, the branch of the drawee bank. This law promises to solve and aid in not only the expeditious disposition of pending cases pertaining to complaints under Section 138, but also to bring sanctity to the system by attempting to clamp down on payment defaults. It clarifies the legal position concerning jurisdiction while also attempting to keep up with the modern banking system. Documents related to business transactions are referred to as negotiable instruments. Negotiable instruments are extremely important in the world of commerce. For international trades, we can use negotiable instruments. A statutory provision or mercantile usage can make an instrument negotiable. These instruments are written so that if payment is not made, the person to whom the payment is to be made can sue the person by whom the payment is to be made. Bills of exchange, cheques, and promissory notes are three different types of negotiable instruments. These are the instruments that are most commonly used in international trade. These instruments can be freely transferred from one person to another an unlimited number of times. The amendments to the NI Act represent a significant effort aimed at increasing efficacy and expediency, which will aid in the expeditious disposition of cases while discouraging frivolous and unnecessary litigation. Furthermore, it protects the complainant's interests by providing interim compensation and ordering payment by the accused in the event of an appeal against conviction. The Amendment Act is unquestionably a positive step toward increasing the credibility of cheques and boosting trade and commerce. Even after the electronic revolution, these negotiable instruments are still in use. The electronics revolution is regarded as the next major step, which will eventually replace negotiable instruments.
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Footnotes
1. Author is a Student at Amity Law School, Noida, India.
2. https://www.indiacode.nic.in/show-data?actid=AC_CEN_2_33_00042_00042_1523271998701&sectionId=45581&sectionno=6&orderno=6 ↩
5. https://www.indiacode.nic.in/show-data?actid=AC_CEN_2_33_00042_00042_1523271998701&orderno=147 ↩
12. Criminal Appeal No(S). 292 of 2021 (Arising Out of SLP(Crl.) No(S).8498 of 2019 ↩
- https://www.indiacode.nic.in/show-data?actid=AC_CEN_2_33_00042_00042_1523271998701§ionId=45581§ionno=6&orderno=6
- https://www.indiacode.nic.in/show-data?actid=AC_CEN_2_33_00042_00042_1523271998701&orderno=147
- Criminal Appeal No(S). 292 of 2021 (Arising Out of SLP(Crl.) No(S).8498 of 2019