Defence in a Cheque Bounce Case

Defences available to accused in cheque bounce cases

Lawyered provides legal defence for accused in 138 NI Act cases and helps them find loopholes in cheque bounce cases to get judgements in their favour. We provide the latest judgements from courts to defend the accused in cheque bounce cases.

Introduction:

These days the method of payment has changed so far. A move is witnessed from payment in cash to payment from cheques and usually post-dated cheques. With the advent of the mode, difficulties and issues came attached with it. These cheques started to bounce back and were dishonoured by the banks for various reasons, and the payee was not able to realise his pending payments from the payer. Therefore, society urged the legislators to criminalise and penalise the Act of cheque bounces. Hence the English Law on Negotiable Instruments, i.e. Negotiable Instruments Act, 1881, was amended in 1988 to criminalise the Act of insufficiency of balance in the drawer's account. Under this article further we will read, 138 ni act latest judgements in favour of accused.

The Law on Negotiable Instruments:

The Act of 1881 deals with all the negotiable instruments like cheques, promissory notes, bills of exchange etc. These are the pieces of paper representing money on a future day entitled by the person. According to the Section of the Act, a negotiable instrument means a promissory note, a bill of exchange or a cheque payable to the order or the bearer. Therefore, only those instruments will be considered negotiable instruments defined by the statute or usage like banknotes, bank drafts, share warrants, bearer debentures, divided warrants, scripts, and treasury bills. 

The Act also defines what is meant by 'cheque' under section 6 of the Act. It defines a cheque, as a bill of exchange drawn on a specified banker, and is not payable otherwise on demand. It is an order of a drawer or depositor on a bank. There are three parties to a cheque, a drawer, a drawee, and a payee. The cheque has a certain validity which is three months. That means any cheque can become stale or invalid from the date of its issuance.

The Act criminalised the Act of cheque bounce or cheque dishonour under sections 138 to section 142.

The Act of Cheque Bounce:

The Act of cheque bounce is committed as soon as the bank returns the cheque unpaid due to either of the following reasons: 

• The signature of the drawer does not match 

• Overwriting on a cheque

• The cheque is presented after three months from the date of its issue, i.e. cheque becomes a staple and expired

• The account of the drawer is closed 

• Insufficient opening balance

• The payment is stopped by the account holder himself

• Funds are insufficient in the account of the drawer

• The account number does not match

• The drawer has died/ became insolvent/ became insane 

• If there have been some altercations with the cheque or the bank doubt the authenticity of the cheque

• If the cheque amount has exceeded or crossed the limits of the overdraft.

• If the cheque is presented in the wrong branch or is a crossed cheque.

Section 138 of the Negotiable Instruments Act, 1881

The section talks about the dishonour of cheques when the funds are found to be insufficient in the account or if the amount exceeds the arrangement made between the bank and the account holder. The person/ holder of the account shall be deemed to have committed the offence of cheque dishonour. The maximum punishment prescribed for the offence under the Act is two years or a fine that may amount to twice the amount of the cheque or both. 

Strategies to Defend the Cheque Bounce Case:

Since the burden of proof in the case of cheque bounce lies on the accused, he can avail the defences to prove himself innocent and plead not guilty. There are certain defence for accused in 138 ni act, which can also be termed as loopholes in cheque bounce cases:

1. When the cheque is given as Security and not for discharge of any debt 

In this defence for accused in 138 ni act, which is one of the loopholes in cheque bounce case , the accused has to prove that the cheque was given as a security deposit and not for any discharge of debt or liability; hence, the case would not stand out under Section 138 of the Negotiable Instruments Act.

2. Friendly loan is given for the unaccounted money

Another defence for accused in 138 ni act is that the liability to pay for the unaccounted cash amount is not covered under Section 138 of the Negotiable Instruments Act. So, any amount given as a loan of unaccounted cash would not be considered for legal recovery. This is one of the major loopholes in cheque bounce case.

3. The Signature on the Cheque is disputed by the Accused.

If the accused himself draws the court's attention to the mismatch of the signature on the cheque, only then the banker could establish evidence of the mismatch of the signature on the cheque. This is a major deefence for accused in 138 ni act, which acts as loopholes in cheque bounce case and used very often in cheque bounce case in favour of accused.

4. "Stop Payment" as instructed by the drawer for some other reason than insufficient funds.

On a complaint made by the complainant under section 138 of the Negotiable Instruments Act, on a basis that the drawer stopped the payment and hence the cheque bounce. If the accused can prove that the funds were sufficient to encash the cheque, but there were certainly other reasons why the payment was stopped, then in such a case, section 138 of the Act would not apply.

5. Section 139 of the Negotiable Instruments Act

Unless the contrary is proved, the presumption of innocence is in cheque bounce case in favour of the Accused. If the accused in such a case presents his defence which could create a reasonable doubt about legally enforceable debt, the prosecution might fail in proving a case under Section 138.

cheque bounce case in favour of accused

Rangappa vs. Mohan and R. Ramachandra Reddy vs. R. Malavathi,  highlights important legal principles in cheque bounce cases in favour of accused in India. The Supreme Court, in the "Rangappa vs. Mohan" case, established that if an accused raises a credible defense challenging the legitimacy of the debt or transaction itself, the complaint may not succeed. The court emphasized that the determination of guilt or innocence should be based on the "preponderance of probabilities" standard rather than the higher threshold of "beyond reasonable doubt," despite the initial presumption of guilt under Section 139 of the Negotiable Instruments Act.

On the other hand, the Kerala High Court, in the case of "R. Ramachandra Reddy vs. R. Malavathi," clarified that an accused person does not have to prove their case beyond a reasonable doubt. Instead, they can rely on the preponderance of probabilities to establish their defense. Furthermore, the court stated that the mere absence of a response from the accused to a legal notice cannot be considered as a valid ground to admit the complainant's case.

138 ni act latest judgements in favour of accused

In the case of Dashrath Rupsingh Rathod v. State of Maharashtra & Anr. ruled that the location of the statutory notification to present the cheque for encashment by the bank is unimportant in determining the geographical jurisdiction of the claims or complaints. The Supreme Court further ordered that the current decision be applied retrospectively to all connected cases, with the exception of those whose trials have already begun. This has seemed to posit that all complaints led by the courts other than where the drawee bank is located must be mandatorily transferred to the appropriate or competent court, and that in the future, creditors must file complaints only in a court with the necessary jurisdiction over the facts of the drawee bank's situation.

Under section 138 ni act latest judgements in favour of accused of the Bombay High Court  has issued circular outlining rules for quick trials in cases brought under Section 138 of the Negotiable Instruments Act in response to a Supreme Court judgement delivered

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