Minimum Turnover for GST before Application
27 Feb, 2024
Nowadays, post-dated checks are frequently used in transactions, and cheques are a common form of payment. When this method of payment rose in popularity, there were instances where the checks were dishonoured or bounced and the payee did not get paid for providing the goods or services. The need to criminalise this act of dishonoured or bounced checks was then recognised. Therefore, the criminalization of writing checks with an insufficient balance in the account of the drawer was implemented in 1988. In order to make such an offence a crime, the Negotiable Instruments Act of 1881, an old British law, as amended.
The Negotiable Instruments Act, of 1881, regulates the use of negotiable instruments, which are pieces of paper that represent amounts of money that belong to one person but can be delivered to another.
Cheques that are returned unpaid by the bank because there are not enough funds in the drawer's account, among other factors, bounce. It is also known as "dishonoured checks." Due to several factors, the payment made by the drawer to the drawee is dishonourable. According to the law, the person who issues the check is known as the drawer, and the person to whose benefit it is issued is known as the drawee.
The bank issues a cheque return memo along with the reasons for the cheque bounce when the check is bounced or dishonoured. The following are potential causes for a bounced check:
The Negotiable Instruments Act of 1881's Section 138 describes how to dishonour a check if there is insufficient money in the account, among other reasons. When someone who maintains a bank account issues a check to another person for the payment of a specific amount of money from that account to discharge any outstanding debt or other liability, whether in full or in part, and that check is returned by the bank unpaid either because the amount of money in that account's credit is insufficient to honour the check or if it exceeds the amount of money arranged to pay the debt by the account holder.
Without affecting any other stipulations of the Negotiable Instruments Act, such a person or that bank account holder shall be considered to have committed a check dishonour offence and shall be punished/ detained with a maximum of one year in prison, a fine that may reach twice the amount specified in the check, or both. A violation of this clause is both bailable and non-cognizable.
Therefore, in order to commit a check bounce offence U/S 138 of the Negotiable Instruments Act, the aforementioned requirements must have been met. In the 2013 case of MSR Leathers v. S. Palaniappan, the court made this ruling.
These can't always work in the payee's favour. Cheques frequently bounce for other causes besides those indicated above. Since the burden of proof rests with the accuser, the drawer has a number of defences at his or her disposal, using which he or she may establish their innocence or enter a plea of not guilty by demonstrating that the debt in question is not legally enforceable.
If the defendant or the bearer of the check can show that no obligation or liability was discharged when the check was issued and that it was just a security deposit, then the violation of Section 138 of the NI Act is not committed.
In this instance, the appellants maintained that there was no outstanding debt or responsibility and that the supplied cheque was the refundable security deposit to secure the completion of the work and compliance with the contract's provisions. Additionally, when the contract was signed, the drawer had no debt or liabilities, and it was stated in the terms of the agreement that the respondent might enact and reclaim the money if the contractor failed to provide the services. But because the task was done, it did not fall under the jurisdiction of Section 138, so it is not a crime.
Liability to pay an unexplained cash amount is not covered by Section 138 of the Negotiable Instruments Act. Therefore, it is not legally enforceable to repay a debt that was supplied in the form of unaccounted cash.
The respondent denied signing both the bill of exchange and the cheque in this case, and the court found that the applicant had failed to establish that the amount advanced was unaccounted for and that it was not disclosed to the Income Tax Authority. The applicant also admitted that the amount advanced was unaccounted for and was not disclosed to the Income Tax Authority, according to the learned judge.
If the accused contests the signature on the check, only the banker could produce any trustworthy evidence that the check bounced because the signatures did not match. To prove that the signature on the check is not the accused's, the bank manager must produce all documents pertaining to the accused's signature.
If a claim is made under Section 138 of the NI Act that the cheque was invalidated because the drawer had given orders to halt the transaction, Therefore, in these situations, the accused must demonstrate that there were adequate monies in the account at the time the payee went to the bank to cash it, but the payment was halted for other reasons; otherwise, Section 138 will not apply. The same ruling was made in the case of MMTC Ltd. v. Medchi Chemicals and Pharma (P) Ltd., which stated that if the accused can prove that there were sufficient funds when the check was presented but that the stop-payment notice was issued for legal reasons, then the stop-payment notice will not be enforced.
In accordance with Section 139, unless the opposite can be demonstrated, it shall be presumed that the payee received the check of the type indicated in Section 138 for the discharge, in whole or in part, of any debt or liability.
There is no doubt that the accused can refute this assumption by a "preponderance of the evidence." Therefore, the prosecution may be unsuccessful if the accused establishes a likely defence that raises a reasonable question regarding the existence of a legally enforceable debt or liability. In many instances, the accused did not need to provide their own or additional evidence; they might accomplish so by relying solely on the materials or evidence presented by the prosecution.
By punishing the offence of a bounced check, the Negotiable Instruments Act helps to prevent the mishandling of checks and ensures that transactions go off without a hitch. Additionally, the accused has defences at their disposal to prevent fictitious instances of check bounce or dishonour. But because they contain so many complexities and call for extremely precise verification of the transactions, incidents of check bounce must be handled with extreme caution. It differs from other cases of offences.