THE NEGOTIABLE INSTRUMENTS ACT, 1881: MOST LITIGATED ISSUES

The most cases filed under the Negotiable Instruments Act, 1881 concern Section 138 of the Act. The following issues are the most litigated issues of all time related to the Negotiable Instruments Act (NI Act from hereinafter):

Directions Issued by the Supreme Court for Speedy Disposal of Cases

M/s Meters and Instruments Private Limited & Anr. vs Kanchan Mehta[1]

A two-judge bench of the SC made some important observations with regard to the cheque dishonour cases and issued directions to accelerate the pace with which the cases are disposed.

The use of modern technologies was also taken into consideration for accelerating the pace of disposal of cases. The court also noted that the use of technological advancements needs to be considered to reduce overcrowding in the courts and create paperless courts. The need to categorize cases which can be concluded online, wholly or partly, without the need of the parties to be physically present where no gravely disputed questions of law are adjudicated necessarily. For an instance, traffic challans can be one of the categories which do not need such stringent measures to be taken.

Mediation for Offences u/s 138 of NI Act, 1881

Dayawati vs Yogesh Kumar Gosain[2]

In a landmark judgement by the Delhi High Court, The court confirmed the legal validity of referring a criminal case filed u/s 138 of the NI Act to mediation.

A distinction was drawn between the traditional crimes and cases filed u/s 138 of the NI Act.

The court also expounded the procedure to follow in the cases of mediation and the contents of a settlement.

Mere Handing Out a Cheque of Dishonour Does Not Amount to an Offence u/s 138

Smt. Asha Baldwa vs Ram Gopal[3]

In this case, a petition was filed in the Rajasthan High Court u/s 482 of CrPC, in order to declare the entire proceedings of the case to be invalid, by the petitioner in capacity of being the petitioner for an offence u/s 138 of the NI Act. It was contented by the respondent that the petitioner was responsible for any consequences that might occur in the proceedings of the said dishonoured cheque as by the act of giving the cheque she was acting as a consenting party. Whereas, the petitioner quashed the allegation and stated that the allegation does not hold good if not levelled against any company or its directors or its partners only in the case when that offence is committed with the connivance or consent u/s 141(2) of the NI Act, attributed to any neglect from any partner, director, manager or secretary.

 

Contractual Liability of the Bank on Fraudulent Means of Transactions

Bihta Co-operative Development and Cane Marketing Union Ltd. and Anr. vs Bank of Bihar and Ors.[4]

In this case, a suit was brought upon against the Bank by the society for a fraudulent withdrawal of ₹11000/- from the Bank. The judgement was pronounced by the trial court and then approved by the High Court. An appeal against the judgement was then filed in the SC. The contention taken on by the bank was that if the customer fails to take ordinary precautions owing to negligence, he is said to permit forgery or an alteration in the cheque.[5] And thus, in such a case, he is liable to bear any losses that are incurred upon him due to the act. The suit was settled on the basis of a precedent given in the case, London Joint Stock Bank Ltd. vs Macmillan and Arther[6], by the House of Lords.

Canara Bank vs Canara Sales Corporation and Ors.[7]

The judgement in the Bihta case was upheld in another judgement by the apex court. The court held that the customer of a bank poses as a creditor to the bank in this case. Upon a fraudulent cheque being presented, the Bank is not authorized to encash it and it would be a violation of the law to debt a customer with the payments of such cheques. In addition to this, the court held that the bank is liable to inform the customer about such fraud and mere stagnation for a continuous period of time cannot release the liability of the bank. The customer, on the other hand, is supposed to inform the bank of any irregularities if encountered when he gains knowledge about them. But such a liability does not exist when the customer is uninformed about the fraudulent means of transactions.

Modi Cements Ltd. vs Kuchil Kumar Nandi[8]

The lack of funds at the time when the cheque was issued does not amount to a presumption of fraud upon issuance of such a cheque.

  1. Bhaskaran vs SankaranVaidhyan Balan[9]

The ruling made in this case was that in order for an offence to be committed u/s 138 of the NI Act a series of a number of actions shall take place. However, this judgement was struck down in a subsequent judgement in the case of Dashrath Rupsingh Rathod vs State of Maharashtra &Anr.[10].

 

 

 

 

Dishonour of Cheques in Case of Partnerships

Katta Sujatha vs Fertilizers & Chemicals Travancore Ltd.[11]

It was held by the Apex Court that a partner in a firm is subject to conviction for an offence if it is proven that he was in consensus with the act or it was committed due to negligence on his part or he is the person responsible for the act.[12]

SC Clarifies the Object Behind Enactment of the Section 138 of the NI Act

Dalmia Cement (Bharat) Ltd. vs M/S Galaxy Trades & Agencies Ltd.[13]

The Apex Court put light on the object with which the Section 138 of the NI Act was incorporated in the Act which was to provide a stringent provision with regard to negotiable instruments such as cheques which may be easily subjected to misuse. Since, the laws related to negotiable instruments have an important position in the world of trade and commerce, they hold a deemed standing to expedite the functions of such fiduciary instruments. The laws enacted with such intentions are needed to be interpreted and altered with regard to their object despite them being deviated from the common law.[14]

[1]Criminal appeal no. 1731 OF 2017

[2]2017, CRL.REF.No.1/2016

[3]Misc(Pet.) No. 2726 / 2014

[4] (1967) AIR 389

[5] https://www.vakilno1.com/legal-news/landmark-judgments-section-138-ni-act-2017.html, last accessed on 24th June’19

[6](1918) AC 777

[7] (1987) AIR 1603

[8] (1998) SC 1057

[9] (1999) 7 SCC 510

[10](2014) 9 SCC 129

[11] Crl.A.No. 855 of 2002

[12] https://blog.ipleaders.in/negotiable-instruments-act-section-138/, last accessed on 24th june’19

[13]Appeal (crl.) 957 of 2000

[14]http://www.mondaq.com/india/x/546352/Financial+Services/Scheme+For+Sustainable+Structuring+Of+Stressed+Assets, last accessed on 24th June’19

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