Important definitions under Negotiable instruments Act.

Important definitions under Negotiable instruments Act.

 

 

S.13 of NI Act defines the term ‘’Negotiable instrument”

A “negotiable instrument” means a promissory note, bill of

exchange or cheque payable either to order or to bearer

Section 4. “Promissory note”.—

A “promissory note” is an instrument in writing (not being a

bank-note or a currency-note) containing an unconditional

undertaking signed by the maker, to pay a certain sum of

money only to, or to the order of, a certain person, or to the

bearer of the instrument.

Section 5. “Bill of exchange”.—

A “bill of exchange” is an instrument in writing containing

an unconditional order, signed by the maker, directing a

certain person to pay a certain sum of money only to, or to

the order of, a certain person or to the bearer of the

instrument

Section 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.

Promissory notes-This transaction generally takes place

between the debtor and the creditor. The debtor creates the

instrument promising the amount of money on a specified

date.

Bills of Exchange- This is just the opposite of the

promissory notes as this is an order from the creditor to the

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debtor. Here, the creditor makes the instrument that instructs

the debtor to pay the payee a certain amount of money. The

bill is created by the creditor.

Cheque- This is just one of the forms of bill of exchange. In

this case, the drawee is a bank and such cheques are payable

on demand. The bank is instructed by the debtor to pay a

certain amount of money to the assigned payee.

Section 7. “Drawer” “Drawee”

The maker of a bill of exchange or cheque is called the

“drawer”; the person thereby directed to pay is called the

“drawee”.

In otherwords the Drawer means–

Drawer of the cheque is the customer or account holder

who issues the cheque.

Drawee means–

Drawee is basically the bank on which the cheque is drawn.

Remember that a cheque is always drawn on a particular

banker.

Payee means –

This is the person who is named in the cheque and gets the

payment for the amount mentioned in the cheque.

Holders and Holders in Due Course

A “holder” of a cheque ,

A Holder of a Cheque, as per Section 8, N.I. Act, is a person

entitled in his own name to the possession thereof and to

receive or recover the amount due thereon from the parties

thereto.

Now, no one can be entitled to the possession of an

instrument unless he becomes either the bearer or endorsee

thereof. A bearer receives an instrument by simple delivery

and upon receipt of delivery becomes the holder.

An order instrument, 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 or endorsee of an instrument.

A holder of a cheque, however, can transfer it to another

person for consideration. This person has been defined in

Section 9, N.I. Act as the “holder in due course”. According

to Section 9, a “holder in due course” is a person who for

consideration had become the possessor of a cheque if

payable to bearer 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.

Section 18. Where amount is stated differently in figures and words.—

If the amount undertaken or ordered to be paid is stated

differently in figures and in words, the amount stated in

words shall be the amount undertaken or ordered to be paid

Section 20. Inchoate stamped instruments.—

Where one person signs and delivers to another a paper

stamped in accordance with the law relating to negotiable

instruments then in force in India, and either wholly blank

or having written thereon an incomplete negotiable

instrument, he thereby gives prima facie authority to the

holder thereof to make or complete, as the case may be,

upon it a negotiable instrument, for any amount

specified therein and not exceeding the amount covered by

the stamp. The person so signing shall be liable upon such

instrument, in the capacity in which he signed the same, to

any holder in due course for such amount;

provided that no person other than a holder in due course

shall recover from the person delivering the instrument

anything in excess of the amount intended by him to be paid

thereunder.

Section 43 "Negotiable instrument made, etc., without consideration"

A negotiable instrument made, drawn, accepted, indorsed or

transferred without consideration, or for a consideration

which fails, creates no obligation of payment between the

parties to the transaction. Hence, a cheque issued without

consideration, cannot enforced

Section 87. Effect of material alteration.—

Any material alteration of a negotiable instrument renders

the same void as against any one who is a party thereto at

the time of making such alteration and does not consent

thereto, unless it was made in order to carry out the common

intention of the original parties;

Alteration by indorsee.—And any such alteration, if made

by an indorsee [a person to whom a cheque made],

discharges his indorser [Drawer of cheque] from all

liability to him in respect of the consideration thereof. The

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provisions of this section are subject to those of sections 20,

49, 86 and 125.

The first paragraph of Section 87 makes it clear that the

party who consents to the alteration as well as the party

who made the alteration are disentitled to complain

against such alteration,

Example:

If the drawer of the cheque himself altered the cheque for

validating or revalidating the same instrument he cannot

take advantage of it later by saying that the cheque became

void as there is material alteration thereto.

Further, even if the payee or the holder of the cheque made

the alteration with the consent of the drawer thereof, such

alteration also cannot be used as a ground to resist the right

of the payee or the holder thereof.

It is always a question of fact whether the alteration was made by the drawer himself or whether it was made with the consent of the drawer.

Hence, it requires evidence to prove the aforesaid question whenever it is

disputed. The issue has been discussed by the Supreme Court of India in

the case of Bir Singh v. Mukesh Kumar [(2019) 4 SCC 197,]. The Supreme

Court has held as follows:

"If a signed blank cheque is voluntarily presented to a

payee, towards some payment, the payee may fill up the

amount and other particulars.This in itself would not

invalidate the cheque. The onus would still be on the

accused to prove that the cheque was not in discharge of a

debt or liability by adducing evidence. A meaningful

reading of the provisions of the Negotiable Instruments Act

including, in particular, Sections 20, 87 and 139, makes it

amply clear that a person who signs a cheque and makes it

over to the payee remains liable unless he adduces evidence

to rebut the presumption that the cheque had been issued for

payment of a debt or in discharge of a liability. It is

immaterial that the cheque may have been filled in by

any person other than the drawer, if the cheque is duly

(3) Nothing in this section applies to summary trials or

to cases in which proceedings have been stayed under

section 322 or in which proceedings have been submitted

to a superior Magistrate under section 325.

264. Judgment in cases tried summarily.—

In every case tried summarily in which the accused does not

plead guilty, the Magistrate shall record the substance of

the evidence and a judgment containing a brief statement of

the reasons for the finding.

The Hon’ble High court of Jharkhand in the case of Chandra Iron & Steel Pvt.Ltd. Vs State of Jharkhand & Ors. [2012 AIR Cheque Dishonour Reports 681] has held that

“Summary trial Dishonour of cheque - Trial - Summary

proceeding - Duty of transferee Magistrate - Some evidence

had been recorded by one Magistrate - Thereafter, case was

transferred to Court of another Magistrate where the

remaining evidence had been recorded by transferee

Magistrate - He had also placed reliance upon the evidence

recorded by predecessor Magistrate - Held, procedure

adopted is absolutely illegal. ‘’

However, the Apex court very recently, in the case of J.V.Baharuni

vs State of Gujarat (2014) 12 SCALE 200 [Crl.Appeal No 2221 of 2014

Decided on 16.10.2014] has held that

“The learned Magistrate has the discretion under Section

143 of the N.I. Act either to follow a summary trial or

summons trial. In case the Magistrate wants to conduct a

summons trial, he should record the reasons after

Negotiable Instrument Act 1881 12 Of 67

hearing the parties and proceed with the trial in the

manner provided under the second proviso to Section

143 of the N.I. Act. Such reasons should necessarily be

recorded by the Trial Court so that further litigation

arraigning the mode of trial can be avoided.

While examining the nature of the trial conducted by the

Trial Court for the purpose of determining whether it was

summary trial or summons trial, the primary and

predominant test to be adopted by the appellate Court

should be whether it was only the substance of the evidence

that was recorded or whether the complete record of the

deposition of the witness in their chief examination, cross

examination and re-examination in verbatim was faithfully

placed on record. The appellate Court has to go through

each and every minute detail of the Trial Court record and

then examine the same independently and thoroughly to

reach at a just and reasonable conclusion. With this brief

introduction on various amendments brought under the NI

Act, Now let’s an idea on the some important definitions

and meaning of various terms.”

***************

Section:118 Presumptions as to negotiable instruments. Until the contrary is proved, the following presumptions

shall be made:—

(a) of consideration —that every negotiable instrument was

made or drawn for consideration, and that every such

instrument, when it has been accepted, indorsed, negotiated

or transferred, was accepted, indorsed, negotiated or

transferred for consideration;

(b) as to date —that every negotiable instrument bearing a

date was made or drawn on such date;

(c) as to time of acceptance —that every accepted bill of

exchange was accepted within a reasonable time after its

date and before its maturity;

(d) as to time of transfer —that every transfer of a

negotiable instrument was made before its maturity;

(e) as to order of indorsements —that the indorsements

appearing upon a negotiable instrument were made in the

order in which they appear thereon;

(f) as to stamps —that a lost promissory note, bill of

exchange or cheque was duly stamped;

(g) that holder is a holder in due course —that the holder

of a negotiable instrument is a holder in due course:

Provided that, where the instrument has been obtained from

its lawful owner, or from any person in lawful custody

thereof, by means of an offence or fraud, or has been

obtained from the maker or acceptor thereof by means of an

Negotiable Instrument Act 1881 20 Of 67

offence or fraud, or for unlawful consideration, the burden

of proving that the holder is a holder in due course lies upon

him.

Section 139. Presumption in favour of holder.—

It shall be presumed, unless the contrary is proved, that the

holder of a cheque received the cheque of the nature

referred to in section 138 for the discharge, in whole or in

part, of any debt or other liability.

Section 4 of Indian Evidence Act

“May Presume” “Shall presume”.”

"May presume". -- Whenever it is provided by this Act that

the Court may presume a fact, it may either regard such

fact as proved, unless and until it is disproved, or may

call for proof of it.

"Shall presume". -- Whenever it is directed by this Act that

the Court shall presume a fact, it shall regard such fact as

proved, unless and until it is disproved.

Section 139 of the Negotiable Instruments Act, 1881 uses the word

“shall presume”, and the meaning of the word “shall presume” in Section

4 of the Evidence Act shows that the presumption under Section 139 is rebuttable.

Section 27 in The General Clauses Act, 1897

Meaning of service by post.

Where any Central Act or Regulation made after the

commencement of this Act authorizes or requires any

document to be served by post, whether the expression serve

or either of the expressions give or send or any other

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expression is used, then, unless a different intention appears,

the service shall be deemed to be effected by properly

addressing, pre-paying and posting by registered post, a

letter containing the document, and, unless the contrary is

proved, to have been effected at the time at which the letter

would be delivered in the ordinary course of post.

Under Subclause (f) of Section 114 of Indian Evidence Act

There can be a presumption of receipt of a letter sent under

post in view of the provisions of Section 114(f) of the Act.

The Sub clause (f) of Section 114 envisages that the Court

may presume that the common course of business had been

followed in particular cases.

The Apex court in the case of N. Parameswaran Unni v. G. Kannan, (2017)

5 SCC 737 has held that

“It is clear from Section 27 of the General Clauses Act,

1897 and Section 114 of the Evidence Act, 1872 that once

notice is sent by registered post by correctly addressing to

the drawer of the cheque, the service of notice is deemed to

have been effected. However, the drawer is at liberty to

rebut this presumption”

The dishonour of a cheque is punishable under Section 138, N.I. Act.

The punishment prescribed is imprisonment for a term which may extend

to two years or fine which may extend to twice the amount of the cheque,

or both.

Who can file a complaint?

Section 142 of the act mandates that the complaint must be filed by the

payee or holder in due course of the cheque. Where a payee is a natural

person he can file a complaint and when the payee is a firm or company or

a juristic person, it must be represented by a natural person.

Ingredients of the Offence Under Section 138, N.I. Act

Though Section 138, N.I. Act penalizes the dishonour of a cheque,

however, dishonour of a cheque is, by itself, not an offence under Section

138.

To become an offence, the following ingredients have to be fulfilled:

1. Drawing of the cheque.

2. Presentation of the cheque to the bank.

3. Return of the cheque unpaid by the drawee bank.

4. Issuance of notice in writing to the Drawer of the cheque

demanding

payment of the cheque amount.

5. Failure of the Drawer to make the payment within 15

days of receipt of the notice.

 

The Time Frames in Respect of the Offence

The ingredients cited above need to be fulfilled in a stipulated time

period, else the cause of action for the offence under Section 138, N.I. Act

does not arise.

a) The cheque has to be 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.

[The Reserve Bank of India vide Notification No.

DBOD.AML BC.No.47/14.01.001/2011-12 has made the

period of validity of a cheque to be three months now.

Hence, as of now, the cheque has to be presented within

three months from the date on which it is drawn.]

b) The payee or holder in due course of the cheque has to

make a demand for payment of the amount due by giving a

notice in writing to the Drawer of the cheque within 30 days

of the receipt of information by him from the bank

regarding dishonour of the cheque.

c) The Drawer of the cheque has to fail to make the payment

of the amount to the payee or holder in due course within 15

days of the receipt of the said notice.

Additionally, the complaint has to be filed within one month

of the date on which the cause of action arises under clause

(c) of the proviso to Section138 N. I. Act. [Section 142].

Now the session to be interesting, the following questions are framed

for the purpose of discussion and food for thought:

1) When does cause of action arises to file a complaint under S.138

of NI Act?

The cheque is to be presented to the bank within a period of

six months from the date on which it was drawn or the

period of its validity,

That the cheque is returned unpaid because of insufficiency

of funds or that the amount of the cheque exceeded the

amount arranged to be paid from the bank and the payee

gave a notice to the drawer claiming the amount within 15

days of the receipt of the information from the bank

regarding the return of the cheque and the drawer failed to

make payment within 15 days of the receipt of the notice.

Under Sub-clause (c) of the proviso a 15 days time is

granted to the drawer of the cheque to make payment and

unless this period elapsed and no payment was made, the

drawer is not liable for any offence under Section 138 of the

Act.

 

2) Whether the complaint under Section 138 of the NI Act is

maintainable when the stipulated period of 15 days of the receipt of the

notice as provided in clause (c) of the proviso appended to Section 138

had not expired. ?

Answer is No. The Division bench of the Hon’ble High

court of Madras in the case of B.Vijayalakshmi vs

R.Amaravathi [Crl.O.P(MD)No.5109 of 2018] Decided on

Negotiable Instrument Act 1881 25 Of 67

30.06.2020 has held that the complaint filed within the

period of fifteen days contemplated by Section 138(c) of the

Negotiable Instruments Act, is no complaint in the eye of

law albeit the repudiation of the debt by the accused via his

reply notice to the statutory demand notice.

After having held so, can the complainant be left high

and dry?

The answer to this, has been given by the Supreme Court in

paragraph 42 of the judgment in Yogendra Pratap Singh v.

Savitri Pandey (supra) and the same is as follows:

“42. ... Now, since our answer to question (i) is in the

negative, we observe that the payee or the holder in due

course of the cheque may file a fresh complaint within one

month from the date of decision in the criminal case and, in

that event, delay in filing the complaint will be treated as

having been condoned under the proviso to clause (b) of

Section 142 of the NI Act. This direction shall be deemed

to be applicable to all such pending cases where the

complaint does not proceed further in view of our

answer to question (i).”

The Apex court very recently on 12.08.2022 has upheld the

above view on premature complaint in the case of Gajanand

Burange v/s Laxmi Chand Goyal [Crl.Appeal No

1229/2022]

 

signed by the drawer. If the cheque is otherwise valid,

the penal provisions of Section 138 would be attracted."