Source: Supreme Court

Why in News?

Recently, a bench of Justices Vikram Nath and Satish Chandra Sharma observed the situation where complaint under Section 138 of the Negotiable Instrument Act, 1881 (NI Act) can be quashed.

• The Supreme Court gave observation in the case of Ghanshyam Gautam v. Usha Rani (Since Deceased) Through L.R.S Ravi Shankar.

What is the Background of Ghanshyam Gautam v. Usha Rani (Since Deceased) Through L.R.S Ravi Shankar Case?

• The appellant was convicted after proceeding under Section 138 of NI Act.
• In the meantime, the parties had settled their scores and had filed a compromise deed dated 16^th January 2018, according to which, the respondent-complainant agreed to accept the amount of Rs. 1,14,000/-(Rupees One Lakh and Fourteen Thousand) as full and final settlement of the cheque amount and the fine imposed by the Trial Court, which had been confirmed by the High Court.
• Still, no one from the respondent side presented the information to court because the case is still pending since 2018.

What was the Court’s Observation?

• The SC held that “Once the settlement has been arrived at and the complainant has signed the deed accepting a particular amount in full and final settlement of the default amount and the fine amount awarded by the Trial Court, the proceedings under Section 138 of the NI Act need to be quashed”.
• The Court allowed the appeal.

What is Section 138 of the Negotiable Instrument Act, 1881?

• About:
  • Section 138 of the NI Act specifically deals with the offence related to dishonor of a cheque for insufficiency of funds or if it exceeds the amount arranged to be paid by the drawer's account.
  • It relates to the procedure where a cheque is drawn by drawer to discharge a debt, wholly or in part, and the cheque is returned to the Bank.
• Key Elements:
  • Liability of Drawer:
    • The drawer becomes criminally liable if the cheque bounces.
    • Criminal liability is established irrespective of the nature of the underlying transaction.
  • Conditions for Offense:
    • Essential conditions include the existence of a debt or other liability, issuance of a cheque, and subsequent dishonor.
    • The offense is not applicable if the drawer had sufficient funds, but the cheque was dishonored due to some other reason.
• Procedure for Prosecution:
  • Notice to Drawer: -
    • The payee must issue a notice within 30 days of the dishonor, demanding payment.
    • The drawer has 15 days of receipt of notice to remedy the situation, failing which legal action can be initiated.
  • Time Limit for Filing Complaint:
    • The complaint under Section 138 must be filed within one month of the expiry of the 15-day notice period.
  • Jurisdiction for Filing Complaint:
    • The complaint can be filed in a court within whose local jurisdiction the payee's bank is situated.
• Punishment:
  • Imprisonment:
    • Conviction under Section 138 can result in imprisonment for a term that may extend to two years.
  • Fine:
    • The drawer may be liable to pay a fine that may extend to twice the amount of the cheque or the debt.
• Landmark Case:
  • Dalmia Cement (Bharat) Ltd. v. Galaxy Traders and Agencies Ltd (2001):
    • SC held that on the date when the notice sent by fax reached the drawer of the cheque the period of 15 days (within which he has to make the payment) has started running and on the expiry of the period the offence is completed unless the amount has been paid in the meanwhile.