(From previous issue)
2. Leave was granted to consider as to whether a commercial bank can file a case under Section 138 of the Negotiable Instruments Act (in short, the Act) in respect of dishonour of a post dated cheque taken from a borrower despite taking collateral security from the borrower ..
3. The leaned Counsel for the appellants/petitioners submits that the commercial banks are not entitled to file a case under Section 138 of the Act in respect of dishonour of a post dated cheque taken from a borrower despite taking collateral security from the borrower On The other hand, the learned Counsel for the respondent banks, submit that this issue has been decided in the case of Majed Hossain vs State” 17 BLC (AD) 177. The views expressed in the said case was as under:
.” A reading of sub-Section (1) of Section 138 of the Act 1881 shows that an offence under the Section shall be deemed to have been committed, the moment a cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account is returned by the bank unpaid on any of the grounds mentioned therein. Sub-Section (1) of Section 138 has not made any qualification of the cheque so returned unpaid either post-dated given as a security for repayment of the loan availed by a loanee as alleged by the accused or any other cheque issued by the drawer for encashment currently. When the legislature has not made any difference between a post-dated cheque issued as security for the repayment of the loan availed by the loanee, here the petitioners, as argued by Mr Chowdhury and a cheque issued for encashment currently, we do not see any scope of making any such difference. Facts to be taken into account to see whether an offence under sub-Section (1) of Section 138 of the Act, 1881 has been committed or not are (a) whether the cheque issued by the drawer was presented to the bank within a period of six months from the date on which the same was drawn or with the period of its validity whichever was earlier by the payee, or as the case may be, by the holder in due course of the cheque, (b) whether the cheque returned unpaid i.e. dishonoured on any of the grounds mentioned in sub-Section (l)(c) whether demand for the payment of the amount of money of the unpaid/dishonoured cheque was made to the drawer of the cheque by the payee or, as the case may be by the holder of the cheque in due course of the cheque by giving a notice in writing within thirty days of the receipt of information from the bank by him regarding the return of the cheque unpaid and lastly (d) whether the drawer of the unpaid/dishonoured cheque failed to make the payment of the amount of money of such cheque within thirty days to the pake or, as the case may be, to the holder in due course of the cheque from the date of receipt of the notice demanding such payment. By no logic, it can be said that the drawer of the cheque, does not know the consequence if a cheque is returned unpaid /dishonoured for the reasons as provided in sub-Section (1) of Section 138 of the Act, 1881, because ignorance of law is no plea.”
4. The provision of Section 138(1) of the Act runs as follows:
“138. Dishonour of cheque for insufficiency, etc. of funds in the account-(l). Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provisions of this Act, be punished with imprisonment for a term which may extend to one year, or with fine which may extend to (thrice) the amount of the cheque, or with both:
Provided that nothing contained in this section shall apply unless-
a) the cheque has been presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier;
(b) the payee or the holder in due course of the cheque, as the case may be, makes a demand for the payment of the said amount of money by giving a notice, in writing, to the drawer of the cheque, within [thirty days] of the receipt of information by him from the bank regarding the return of the cheque as unpaid, and
(c) the drawer of such, cheque fails to make the payment of the said amount of money to the payee or, as the case may be, to the holder in due course of the cheque, with [thirty days] of the receipt of the said notice.”
6. The words “for the discharge in whole or in part, of any debt or other liability” were omitted by Act No. XVII of 2000 from original Section 138 of the Act. In original provision of 138(1) of the Act, those words were incorporated in between the words, “from out of that account” and before the words, “is return by the bank”. The Legislature, exercising its wisdom, deleted those words from the enactment purposely. Consequently, the Court is not authorized to examine whether “any cheque” drawn by person was issued “for the discharge in whole or in part, of any debt or other liability” or not. That is, by amending the aforesaid provision of law the Legislature has limited the jurisdiction of the Court so that it cannot examine the cheque drawn by person on an account maintained by him with a banker for payment of any amount of money from his account to another person from out of that account, “for the discharge in whole or in part, of any debt or other liability”. In other words, in earlier provision there was a wide authority of the Court to consider whether the drawer has/had any debt or other liability to the payee of the cheque or not.
7. The question for consideration in this case is whether the dishonour of a post-dated cheque given for repayment of loan installment which is also described as “security” of the loan is covered by Section 138 of the Act. It is the claim of the appellants/petitioners that all the cheques were issued in advance as security against their loan. Only question, in this regard, for consideration is “where any cheque” drawn by a person includes posted cheque/advance cheque/security cheque.
8. In the case of Goddum vs Andhra Bank, reported in AIR 2000 AP 379 it was observed that the followings are the essential requisites of a proper cheque:
(1) an instrument in writing;
(2) it must contain an unconditional order signed by the maker;
(3) it must direct a specific banker to pay a sum of money, either
(a) to a certain person, or
(b) to the order of a person, or
(c) to the bearer of the cheque
(4) it must be payable on demand, that is, it must not be expressed to be payable otherwise than on demand;
(5) it must be for a certain sum of money;
(6) the amount of the cheque must be mentioned clearly, and
(7) the drawer must be a customer of the bank.
9. One of the essential requisites of a “cheque” is that the amount of the cheque must be mentioned clearly. That is for avoiding forgery /interpolation of the amount of the cheque. The cheque should be written clearly without keeping blank space on the cheque before or after the amount, stated in the words and in figures. A post dated cheque is a form of a crossed or account payee bearer cheque but post dated to meet the financial obligation at a future date. The question is whether a post dated cheque is really a cheque or not. Supreme Court of India in Anil Kumar Sahane vs Gulshan, reported in 4 SCC 424 and Ashok Yeshant vs SM Nighosakar, reported AIR 2001 SC 1315 has observed that a post dated cheque is only a bill of exchange when it is written or drawn; it becomes a cheque when it is payable on demand. The post dated cheque is not payable till the date which is shown on the face of the said document. It will only become a cheque on the date shown on it and prior to that it remains a bill of exchange under Section 5 of the Act. As a bill of exchange a post-dated cheque remains negotiable but it will not become a ‘cheque’ till the date’ when it become payable on demand. In the case of Anil Kumer (Supra) it was observed that an offence to be made out under the substantive provisions of Section 138 of the Act it is mandatory that the cheque is presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier. It is the cheque drawn which has to be presented to the bank within the periods specified therein. When a postdated cheque is written or drawn it is only a bill of exchange and, as such, the provisions of Section 138 (a) are not applicable to the said instrument. The postdated cheque becomes a cheque under the Act on the date which is written on the said cheque and the six months period, has to be reckoned for the purposes of Section 138(a) from the said date.
One of the main ingredients of the offence under Section 138 of the Act is, the return of the cheque by the bank unpaid. Till the time the cheque is returned by the bank unpaid, no offence under Section 138 is made out. A postdated cheque cannot be presented before the bank and, as such, the question of its return would not arise. It is only when the postdated cheque becomes a ‘cheque’, with effect from the date shown on the face of the said cheque, the provisions of Section 138 come into play. The net result is that a postdated cheque remains a bill of exchange till the date written on it. With effect from the date shown on the face of the said cheque it becomes a ‘cheque’ under the Act and the provisions of Section 138 (a) would squarely be attracted.
10. In Ashok Yeshwant (supra) it was observed that from a bare perusal of Sections 5 and 6 of the Act it would appear that bill of change is a negotiable instrument in writing containing an instruction to a third party to pay a stated sum of money at a designated future dated or on demand. On the other hand, a ‘cheque’ is a bill of exchange drawn on a bank by the holder of an account payable on demand. Under Section 6 of the Act a ‘cheque’ is also a bill of exchange but it is drawn on a banker and payable on demand. A bill of exchange even though drawn on a banker, if it is not payable on demand, it is not a cheque. A post-dated cheque is not payable till the date which is shown thereon arrives and will become cheque on the said date and prior to that date the same remains bill of exchange.
(To be continued)
2. Leave was granted to consider as to whether a commercial bank can file a case under Section 138 of the Negotiable Instruments Act (in short, the Act) in respect of dishonour of a post dated cheque taken from a borrower despite taking collateral security from the borrower ..
3. The leaned Counsel for the appellants/petitioners submits that the commercial banks are not entitled to file a case under Section 138 of the Act in respect of dishonour of a post dated cheque taken from a borrower despite taking collateral security from the borrower On The other hand, the learned Counsel for the respondent banks, submit that this issue has been decided in the case of Majed Hossain vs State” 17 BLC (AD) 177. The views expressed in the said case was as under:
.” A reading of sub-Section (1) of Section 138 of the Act 1881 shows that an offence under the Section shall be deemed to have been committed, the moment a cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account is returned by the bank unpaid on any of the grounds mentioned therein. Sub-Section (1) of Section 138 has not made any qualification of the cheque so returned unpaid either post-dated given as a security for repayment of the loan availed by a loanee as alleged by the accused or any other cheque issued by the drawer for encashment currently. When the legislature has not made any difference between a post-dated cheque issued as security for the repayment of the loan availed by the loanee, here the petitioners, as argued by Mr Chowdhury and a cheque issued for encashment currently, we do not see any scope of making any such difference. Facts to be taken into account to see whether an offence under sub-Section (1) of Section 138 of the Act, 1881 has been committed or not are (a) whether the cheque issued by the drawer was presented to the bank within a period of six months from the date on which the same was drawn or with the period of its validity whichever was earlier by the payee, or as the case may be, by the holder in due course of the cheque, (b) whether the cheque returned unpaid i.e. dishonoured on any of the grounds mentioned in sub-Section (l)(c) whether demand for the payment of the amount of money of the unpaid/dishonoured cheque was made to the drawer of the cheque by the payee or, as the case may be by the holder of the cheque in due course of the cheque by giving a notice in writing within thirty days of the receipt of information from the bank by him regarding the return of the cheque unpaid and lastly (d) whether the drawer of the unpaid/dishonoured cheque failed to make the payment of the amount of money of such cheque within thirty days to the pake or, as the case may be, to the holder in due course of the cheque from the date of receipt of the notice demanding such payment. By no logic, it can be said that the drawer of the cheque, does not know the consequence if a cheque is returned unpaid /dishonoured for the reasons as provided in sub-Section (1) of Section 138 of the Act, 1881, because ignorance of law is no plea.”
4. The provision of Section 138(1) of the Act runs as follows:
“138. Dishonour of cheque for insufficiency, etc. of funds in the account-(l). Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provisions of this Act, be punished with imprisonment for a term which may extend to one year, or with fine which may extend to (thrice) the amount of the cheque, or with both:
Provided that nothing contained in this section shall apply unless-
a) the cheque has been presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier;
(b) the payee or the holder in due course of the cheque, as the case may be, makes a demand for the payment of the said amount of money by giving a notice, in writing, to the drawer of the cheque, within [thirty days] of the receipt of information by him from the bank regarding the return of the cheque as unpaid, and
(c) the drawer of such, cheque fails to make the payment of the said amount of money to the payee or, as the case may be, to the holder in due course of the cheque, with [thirty days] of the receipt of the said notice.”
6. The words “for the discharge in whole or in part, of any debt or other liability” were omitted by Act No. XVII of 2000 from original Section 138 of the Act. In original provision of 138(1) of the Act, those words were incorporated in between the words, “from out of that account” and before the words, “is return by the bank”. The Legislature, exercising its wisdom, deleted those words from the enactment purposely. Consequently, the Court is not authorized to examine whether “any cheque” drawn by person was issued “for the discharge in whole or in part, of any debt or other liability” or not. That is, by amending the aforesaid provision of law the Legislature has limited the jurisdiction of the Court so that it cannot examine the cheque drawn by person on an account maintained by him with a banker for payment of any amount of money from his account to another person from out of that account, “for the discharge in whole or in part, of any debt or other liability”. In other words, in earlier provision there was a wide authority of the Court to consider whether the drawer has/had any debt or other liability to the payee of the cheque or not.
7. The question for consideration in this case is whether the dishonour of a post-dated cheque given for repayment of loan installment which is also described as “security” of the loan is covered by Section 138 of the Act. It is the claim of the appellants/petitioners that all the cheques were issued in advance as security against their loan. Only question, in this regard, for consideration is “where any cheque” drawn by a person includes posted cheque/advance cheque/security cheque.
8. In the case of Goddum vs Andhra Bank, reported in AIR 2000 AP 379 it was observed that the followings are the essential requisites of a proper cheque:
(1) an instrument in writing;
(2) it must contain an unconditional order signed by the maker;
(3) it must direct a specific banker to pay a sum of money, either
(a) to a certain person, or
(b) to the order of a person, or
(c) to the bearer of the cheque
(4) it must be payable on demand, that is, it must not be expressed to be payable otherwise than on demand;
(5) it must be for a certain sum of money;
(6) the amount of the cheque must be mentioned clearly, and
(7) the drawer must be a customer of the bank.
9. One of the essential requisites of a “cheque” is that the amount of the cheque must be mentioned clearly. That is for avoiding forgery /interpolation of the amount of the cheque. The cheque should be written clearly without keeping blank space on the cheque before or after the amount, stated in the words and in figures. A post dated cheque is a form of a crossed or account payee bearer cheque but post dated to meet the financial obligation at a future date. The question is whether a post dated cheque is really a cheque or not. Supreme Court of India in Anil Kumar Sahane vs Gulshan, reported in 4 SCC 424 and Ashok Yeshant vs SM Nighosakar, reported AIR 2001 SC 1315 has observed that a post dated cheque is only a bill of exchange when it is written or drawn; it becomes a cheque when it is payable on demand. The post dated cheque is not payable till the date which is shown on the face of the said document. It will only become a cheque on the date shown on it and prior to that it remains a bill of exchange under Section 5 of the Act. As a bill of exchange a post-dated cheque remains negotiable but it will not become a ‘cheque’ till the date’ when it become payable on demand. In the case of Anil Kumer (Supra) it was observed that an offence to be made out under the substantive provisions of Section 138 of the Act it is mandatory that the cheque is presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier. It is the cheque drawn which has to be presented to the bank within the periods specified therein. When a postdated cheque is written or drawn it is only a bill of exchange and, as such, the provisions of Section 138 (a) are not applicable to the said instrument. The postdated cheque becomes a cheque under the Act on the date which is written on the said cheque and the six months period, has to be reckoned for the purposes of Section 138(a) from the said date.
One of the main ingredients of the offence under Section 138 of the Act is, the return of the cheque by the bank unpaid. Till the time the cheque is returned by the bank unpaid, no offence under Section 138 is made out. A postdated cheque cannot be presented before the bank and, as such, the question of its return would not arise. It is only when the postdated cheque becomes a ‘cheque’, with effect from the date shown on the face of the said cheque, the provisions of Section 138 come into play. The net result is that a postdated cheque remains a bill of exchange till the date written on it. With effect from the date shown on the face of the said cheque it becomes a ‘cheque’ under the Act and the provisions of Section 138 (a) would squarely be attracted.
10. In Ashok Yeshwant (supra) it was observed that from a bare perusal of Sections 5 and 6 of the Act it would appear that bill of change is a negotiable instrument in writing containing an instruction to a third party to pay a stated sum of money at a designated future dated or on demand. On the other hand, a ‘cheque’ is a bill of exchange drawn on a bank by the holder of an account payable on demand. Under Section 6 of the Act a ‘cheque’ is also a bill of exchange but it is drawn on a banker and payable on demand. A bill of exchange even though drawn on a banker, if it is not payable on demand, it is not a cheque. A post-dated cheque is not payable till the date which is shown thereon arrives and will become cheque on the said date and prior to that date the same remains bill of exchange.
(To be continued)
