NEGOTIABLE INSTRUMENTS ACT, 1881

Subject Matter : Liability of maker of note and acceptor of bill.
Relevant Section : Section 32: This section requires the maker or acceptor of promissory note or a Bill Of Exchange to make payment in accordance with the terms of the instrument, or compensate in case of default, to the holder.
Key Issue : Whether the CSC, first respondent, is liable in the capacity of the drawer-acceptor when addressed as MMTC A/c CSC Calcutta as extracted earlier?
Citation Details : American Express Bank Ltd. vs. Calcutta Steel Co. and Ors. (18.12.1992 - SC): MANU/SC/0667/1992
Summary Judgment :

Facts: The admitted facts are that the appellant/first defendant is the banker. The CSC, obtained licence to import steel billets. The Govt. of India's import policy for 1985-88 was that iron and steel etc. should be imported through canalised agency i.e. M/s. Minerals and Metals Trading Corpn. of India Ltd. for short "MMTC", the 3rd defendant/3rd respondent. CSC approached MMTC for letter of authority to import the goods. M/s. Harlow and Jones Ltd., London is the supplier. The latter permitted CSC to draw draft on "MMTC A/c. Calcutta Steel Co. Ltd., 20, Hemanta Basu Sarani, Calcutta 700001" for a sum not exceeding US $ 1,456,000, payable to the beneficiary on presentation of a separate draft within 180 days from the date of bill of lading drawn for 100% of the invoice value. The cargo sent under bill of lading reached at Calcutta port in the month of February, 1987 and were presented to CSC, who received the documents, executed a trust receipt in favour of the appellant and endorsed its acceptance on the said three usance Bills of Exchange.

Held: CSC accepted to be the Principal importer of the steel billets; took irrevocable letters of credit and thereby had undertaken the liability to the foreign suppliers; on receipt of the cargo on bill of lading and the bills of exchange of drawer. M/s. Harlow Jones Ltd. had accepted the bills of exchange as drawee and had endorsement from MMTC on the bill of lading in its favour; and thereafter had and appropriated the goods. These admitted facts unmistakably show that CSC accepted the bills of exchange as drawee and hence is liable to default.

Subject Matter : Liability of banker for negligently dealing with bill presented for payment.
Relevant Section : Section 77: When a bill of exchange, accepted payable at a specified bank, has been duly presented there for payment and dishonoured, if the banker so negligently or improperly keeps, deals with or delivers back such bill as to cause loss to the holder, he must compensate the holder for such loss.
Key Issue : Whether the Bank is liable for negligence for the loss of the cheque in transit?
Citation Details : Syndicate Bank and Ors. vs. K.K. Parthasarathy (06.09.1994 - SCDRC Kerala): MANU/SC/0073/1994
Summary Judgment :

Facts: The Complainant had Savings Bank Account with Kottayam Branch of the 1st Opposite Party's Bank. A cheque issued to complainant was deposited with the Kottayam Branch of the Syndicate Bank for sending the same for collection and for crediting the amount into the complainant's account. The complainant issued a cheque for Rs. 75,000/- with a letter to the 2nd opposite party, the Branch Manager of the Syndicate Bank requesting to transfer the sum of Rs. 75,000/- to the complainant's Account presumably thinking that the cheque deposited by the complainant with the opposite parties was already encashed and the amount was credited in his account with the opposite parties. The cheque was dishonoured. The complainant alleged that due to negligence and deficiency on the part of the opposite parties the complainant lost Rs. 75,000/- and is undergoing mental agony and anguish and the reputation of the complainant was also affected. He therefore claimed Rs. 75,000/- together with interest and also compensation of Rs. 10,000/- for his mental agony and loss of reputation besides Rs. 200/- towards the cost of notice sent to the opposite parties.

Held: In our view even in a case to which Section 77 has application, the parties may contract against the liability created by the section for payment of compensation. It is not disputed that the evidence specifically gives immunity to the 1st opposite party against any claim for non intimation of dishonour or loss of instrument in the transit. As per the provisions of rules of collection of instruments the bank was not liable for any delay/loss of instrument in transit and is entitled to charge overdue interest on the account advanced to them/discounted to them from the date of discount to the date of discharge of liability. Appeal allowed.

Subject Matter : The burden of proof of the amount due shall be on the accused.
Relevant Section : Section 320, Code of Criminal Procedure, 1973: Procedure where parties refer dispute to arbitrators.-A criminal case is not a matter between the parties as a civil case is. A Magistrate is not bound to recognise a reference to arbitration and wait for the arbitrators to make the award though it will be reasonable to do so. If he does not choose to wait, he will not be doing anything illegal. But if he chooses to wait and then there is an award, that award may amount to a compounding of the offence in question, and if it is an offence compoundable under this section, effect will be given to such compounding.
Section 138: A cheque will be dishonoured due to insufficiency of funds in the drawer's account, or when the cheque amount is in excess of credit limit that the drawer can avail. The five ingredients required for the dishonor of cheque are:
a. Drawing of the cheque,
b. Presentation of the cheque to the bank,
c. Returning the cheque unpaid by the drawee bank,
d. Giving notice in writing to the drawer of the cheque demanding payment of the cheque amount,
e. Failure of the drawer to make payment within 15 days of the receipt of the notice; only then penalty can be levied on him.
Note: When the proviso implies, main section will not.
Section 142: Empowers a Metropolitan/ Judicial Magistrate to take cognizance of an offence of dishonour if the complaint is made within one month in writing by the payee.
Key Issue : Whether the onus to prove the due amount shifts to the accused?
Citation Details : Uttam Ram vs. Devinder Singh Hudan and Ors. (17.10.2019 - SC): MANU/SC/1435/2019
Summary Judgment :

Facts: The Trial Court dismissed the complaint filed against Respondent for offence of dishonor of cheque under Section 138 of Act for the reason that cheque amount was more than the amount alleged on the due date when cheque was presented. Therefore, the cheque could not be said to be drawn towards discharge of whole or in part of any debt. On appeal, the High Court held that Appellant had failed to prove guilt of Respondent beyond reasonable doubt. Hence, the present appeal.

Held: The Accused had failed to lead any evidence to rebut the statutory presumption, a finding returned by both the Trial Court and the High Court. Both Courts not only erred in law but also committed perversity when the due amount was said to be disputed only on account of discrepancy in the cartons, packing material or the rate to determine the total liability as if the Appellant was proving his debt before the Civil Court. Therefore, it was presumed that the cheques in question were drawn for consideration and the holder of the cheques i.e., the Appellant received the same in discharge of an existing debt. The onus, thereafter, shifts on the Accused-Appellant to establish a probable defence so as to rebut such a presumption, which onus had not been discharged by the Respondent. The conclusion drawn by the Trial Court and the High Court to acquit the Respondent was not only illegal but being perverse was totally unsustainable in law.

Subject Matter : Criminal compoundable case u/s.138 can be referred to mediation.
Relevant Section : Section 320, Code of Criminal Procedure, 1973: Procedure where parties refer dispute to arbitrators.-A criminal case is not a matter between the parties as a civil case is. A Magistrate is not bound to recognise a reference to arbitration and wait for the arbitrators to make the award though it will be reasonable to do so. If he does not choose to wait, he will not be doing anything illegal. But if he chooses to wait and then there is an award, that award may amount to a compounding of the offence in question, and if it is an offence compoundable under this section, effect will be given to such compounding.
Section 138: A cheque will be dishonoured due to insufficiency of funds in the drawer's account, or when the cheque amount is in excess of credit limit that the drawer can avail. The five ingredients required for the dishonor of cheque are:
a. Drawing of the cheque,
b. Presentation of the cheque to the bank,
c. Returning the cheque unpaid by the drawee bank,
d. Giving notice in writing to the drawer of the cheque demanding payment of the cheque amount,
e. Failure of the drawer to make payment within 15 days of the receipt of the notice; only then penalty can be levied on him.
Note: When the proviso implies, main section will not.
Section 142: Empowers a Metropolitan/ Judicial Magistrate to take cognizance of an offence of dishonour if the complaint is made within one month in writing by the payee.
Key Issue : a. What is the legality of referral of a criminal compoundable case u/s. 138 of the NI Act to mediation?
b. If the Mediated Settlement Agreement, by itself, is taken to be tantamount to a decree, then, how the same is to be executed? Is the complainant to be relegated to file an application for execution in a civil court?
Citation Details : Dayawati vs. Yogesh Kumar Gosain (17.10.2017 - DELHC): MANU/DE/3173/2017
Summary Judgment :

Facts: The appellant Smt. Dayawati/complainant filed a complaint under Section 138 of the NI Act, complaining that the respondent Shri Yogesh Kumar Gosain/respondent had a liability of 55,99,600/- towards her for supply of fire-fighting goods and equipment to the respondent on different dates and different quantities. In part discharge of this liability, the respondent was stated to have issued two account payee cheques in favour of the complainants. Unfortunately, these two cheques were dishonoured by the respondent's bank on presentation on account of "insufficiency of funds". As a result, the complainant was compelled to serve a legal notice of demand on the respondent which, when went unheeded, led to the filing of two complaint cases under Section 138 of the NI Act. In these proceedings, both parties had expressed the intention to amicably settle their disputes. Consequently, by a common order dated 1st April, 2015 recorded in both the complaint cases, the matter was referred for mediation to the Delhi High Court Mediation and Conciliation Centre.

Held: a. It is legal to refer a criminal compoundable case as one under Section 138 of the NI Act to mediation.
b. The settlement reached in mediation arising out of a criminal case does not tantamount to a decree by a civil court and cannot be executed in a civil court. However, a settlement in mediation arising out of referral in a civil case by a civil court, can result in a decree upon compliance with the procedure under Order XXIII of the C.P.C. This can never be so in a mediation settlement arising out of a criminal case.

Subject Matter : Dishonour of cheque for insufficiency, etc., of funds in the account.
Relevant Section : Section 320, Code of Criminal Procedure, 1973: Procedure where parties refer dispute to arbitrators.-A criminal case is not a matter between the parties as a civil case is. A Magistrate is not bound to recognise a reference to arbitration and wait for the arbitrators to make the award though it will be reasonable to do so. If he does not choose to wait, he will not be doing anything illegal. But if he chooses to wait and then there is an award, that award may amount to a compounding of the offence in question, and if it is an offence compoundable under this section, effect will be given to such compounding.
Section 138: A cheque will be dishonoured due to insufficiency of funds in the drawer's account, or when the cheque amount is in excess of credit limit that the drawer can avail. The five ingredients required for the dishonor of cheque are:
a. Drawing of the cheque,
b. Presentation of the cheque to the bank,
c. Returning the cheque unpaid by the drawee bank,
d. Giving notice in writing to the drawer of the cheque demanding payment of the cheque amount,
e. Failure of the drawer to make payment within 15 days of the receipt of the notice; only then penalty can be levied on him.
Note: When the proviso implies, main section will not.
Section 142: Empowers a Metropolitan/ Judicial Magistrate to take cognizance of an offence of dishonour if the complaint is made within one month in writing by the payee.
Key Issue : a. Whether 15 days' notice required to be given?
b. Whether the amount payable is the outstanding sum or the pending bills only?
Citation Details : Rahul Builders vs. Arihant Fertilizers and Chemical and Ors. (02.11.2007 - SC): MANU/SC/4139/2007
Summary Judgment :

Facts: Appellant is a partnership firm. Respondent No. 1 entered into a contract with it for construction of a building and factory premises. Appellant executed the said contract. It submitted bills for execution of contractual work for a sum of Rs. 26,46,647/-. Respondent No. 1 had made payments of Rs. 17,74,238/- and a balance of Rs. 8,72,409/- was said to be outstanding. A cheque for a sum of Rs. 1,00,000/- drawn on Federal Bank Limited, Indore was issued by Respondent No. 1 in favour of the appellant. Upon presentation of the said cheque, it was not honoured on the ground that Respondent No. 1 had closed its account with the bank. A notice dated 31.10.2000 was sent by it to Respondent No. 1. As despite receipt of the said notice, Respondent No. 1 did not make any payment, a complaint petition was filed on 11.12.2000. An application was filed by Respondent No. 1 for rejection of the said complaint inter alia on the ground that the notice issued by the appellant was not a valid one. The said application was rejected. A revision application filed there against before the District and Sessions Judge, Neemuch was also dismissed. High court, however, allowed the appeal stating that 15 days' notice was not given and the pending amount mentioned was also wrong which made the notice vague.

Held: a. Section 138 does not speak of a 15 days' notice. It contemplates service of notice and payment of the amount of cheque within 15 days from the date of receipt thereof. When the statute prescribes for service of notice specifying a particular period, it should be expressly stated. In absence of any such stipulation, it is difficult to hold that 15 days' notice was thereby contemplated. The High Court, therefore, was not correct in arriving at the aforementioned finding.
b. We have noticed hereinbefore the notice dated 31.10.2000 issued by the appellant to Respondent No. 1. An information thereby was only given that the cheque when presented was returned "unpassed" by the bank authorities on the plea that the account had been closed. By the operative portion of the said notice, the respondent was called upon to remit the payment of his pending bills, otherwise suitable action shall be taken. An omnibus notice without specifying as to what was the amount due under the dishonoured cheque would not subserve the requirement of law. Respondent No. 1 was not called upon to pay the amount which was payable under the cheque issued by it. The amount which it was called upon to pay was the outstanding amounts of bills, i.e., Rs. 8,72,409/-. The notice was to respond to the said demand. Pursuant thereto, it was to offer the entire sum of Rs. 8,72,409/-. No demand was made upon it to pay the said sum of Rs. 1,00,000/- which was tendered to the complainant by cheque dated 30.04.2000. What was, therefore, demanded was the entire sum and not a part of it.

Subject Matter : Vicarious Liability; Consenting party is equally liable.
Relevant Section : Section 320, Code of Criminal Procedure, 1973: Procedure where parties refer dispute to arbitrators.-A criminal case is not a matter between the parties as a civil case is. A Magistrate is not bound to recognise a reference to arbitration and wait for the arbitrators to make the award though it will be reasonable to do so. If he does not choose to wait, he will not be doing anything illegal. But if he chooses to wait and then there is an award, that award may amount to a compounding of the offence in question, and if it is an offence compoundable under this section, effect will be given to such compounding.
Section 138: A cheque will be dishonoured due to insufficiency of funds in the drawer's account, or when the cheque amount is in excess of credit limit that the drawer can avail. The five ingredients required for the dishonor of cheque are:
a. Drawing of the cheque,
b. Presentation of the cheque to the bank,
c. Returning the cheque unpaid by the drawee bank,
d. Giving notice in writing to the drawer of the cheque demanding payment of the cheque amount,
e. Failure of the drawer to make payment within 15 days of the receipt of the notice; only then penalty can be levied on him.
Note: When the proviso implies, main section will not.
Section 142: Empowers a Metropolitan/ Judicial Magistrate to take cognizance of an offence of dishonour if the complaint is made within one month in writing by the payee.
Key Issue : a. Whether the second accused, being the managing director of the first accused company, is liable u/s. 138?
b. Whether the complainant is competent to file the complaint u/s. 142?
Citation Details : Jayalakshmi Nataraj vs. Jeena and Co. (06.10.1994 - MADHC): MANU/TN/0075/1994
Summary Judgment :

Facts: The petitioner is the second accused in the proceedings before the learned Magistrate. She is challenging that proceedings on two grounds, viz., that there is no overt act alleged against her in the complaint except merely describing her as a director and the person who has signed the complaint, Unnikrishnan, has not produced any authorisation or power of attorney to accept that he is competent to file the complaint on behalf of the complainant and, therefore, on these two grounds, the complaint against here is not sustainable and is liable to be quashed.

Held: a. The petitioner, who is the second accused, is the managing director of the first accused company. When the allegation is that she is the managing director, it cannot be taken that she is not participating in the day-to-day administration of the company or that she is a sleeping partner knowing nothing about the affairs of the company. Therefore, the allegation that she is the managing director of the company is sufficient overt act against the petitioner herein with regard to the offence alleged under section 138 of the Negotiable Instruments Act, 1881.
b. Under section 142(a) of the Negotiable Instruments Act, 1881, the complaint shall be filed by the payee or, as the case may be, the holder in due course of the cheque. As mentioned above, Jeena and Company, which is the partnership firm, has launched the complaint and, therefore, when the payee has launched the complaint, there cannot be any objection that the complaint has not been properly initiated. The signatory to the complaint has described himself in the cause title itself that he is the senior assistant. Whether he is the senior assistant or not, is a matter to be considered in the evidence at the time of trial and to satisfy this court now, the power of attorney also is produced. Therefore, I find that there is no merit in this petition to quash the proceedings.

Subject Matter : Ingredients necessary for an act to be an offence u/s. 138 and territorial jurisdiction for the judicial proceedings.
Relevant Section : Section 320, Code of Criminal Procedure, 1973: Procedure where parties refer dispute to arbitrators.-A criminal case is not a matter between the parties as a civil case is. A Magistrate is not bound to recognise a reference to arbitration and wait for the arbitrators to make the award though it will be reasonable to do so. If he does not choose to wait, he will not be doing anything illegal. But if he chooses to wait and then there is an award, that award may amount to a compounding of the offence in question, and if it is an offence compoundable under this section, effect will be given to such compounding.
Section 138: A cheque will be dishonoured due to insufficiency of funds in the drawer's account, or when the cheque amount is in excess of credit limit that the drawer can avail. The five ingredients required for the dishonor of cheque are:
a. Drawing of the cheque,
b. Presentation of the cheque to the bank,
c. Returning the cheque unpaid by the drawee bank,
d. Giving notice in writing to the drawer of the cheque demanding payment of the cheque amount,
e. Failure of the drawer to make payment within 15 days of the receipt of the notice; only then penalty can be levied on him.
Note: When the proviso implies, main section will not.
Section 142: Empowers a Metropolitan/ Judicial Magistrate to take cognizance of an offence of dishonour if the complaint is made within one month in writing by the payee.
Key Issue : Whether liable to be dismissed for want of territorial jurisdiction of Magistrate Court?
Citation Details : K. Bhaskaran vs. Sankaran Vaidhyan Balan and Ors. (29.09.1999 - SC): MANU/SC/0625/1999
Note: Overruled by Dashrath Rupsingh Rathore case.
Summary Judgment :

Facts: The 'complainant presented a cheque which bears the signature of the accused before the Syndicate Bank's branch office at Kayamkulam (Kerala) on 29.1.1993 for encashment. The cheque was for an amount of rupees one lakh. The bank bounced the cheque due to insufficiency of funds in the account of the accused. Complainant issued a notice by registered post in the address of the accused on 2.2.1993. The notice was returned to the complainant on 15.2.1993. As the postal article remained unclaimed till 15. 2.1993 it was returned to the sender with a further endorsement 'unclaimed.' A complaint was filed by the complainant against the accused under Section 138 of the Act. The accused raised the contention regarding the territorial jurisdiction of the said magistrate Court to try the case as the cheque was dishonoured at the Syndicate Bank's Branch office at Kayamkulam situated in another district in Kerala. Accused denied having issued the cheque although he owned his signature therein. The accused said that the complainant had snatched away some signed blank cheque leaves from his possession and utilised one such cheque leaf for the present case. He also contended that he did not receive any notice from the complainant regarding dishonour of the cheque and hence no cause of action would have arisen in this case. Trial Court favoured the accused but the High Court favoured the complainant. Hence, the present appeal.

Held: The offence under Section 138 of the Act can be completed only with the concatenation of a number of acts. It is not necessary that all the five acts should have been perpetrated at the same locality. It is not necessary that all the five acts should have been perpetrated at the same locality. It is possible that each of those five acts could be done at five different localities. But concatenation of all the above five is a sine qua non for the completion of the offence under Section 138 of the Act. If five different acts were done in five different localities, any one of the courts exercising jurisdiction in one of the five local areas can become the place of trial for the offence under Section 138 of the Act. In other words, the complainant can choose any one of those courts having jurisdiction over any one of the local areas within the territorial limits of which any one of those five acts was done. As the amplitude stands so widened and so expansive it is an idle exercise to raise jurisdictional question regarding the offence under Section 138 of the Act.

Subject Matter : Jurisdiction: Venue of judicial inquiry.
Relevant Section : Section 72: A cheque must be presented at the bank upon which it is drawn in order to charge the drawer.
Key Issue : Whether the case has to be initiated at the place where the branch of the bank on which the cheque was drawn is located?
Citation Details : Dashrath Rupsingh Rathod vs. State of Maharashtra (01.08.2014 - SC): MANU/SC/0655/2014
Summary Judgment :

Facts: Cheque was drawn by the accused on State Bank of Travancore, Delhi. It was presented at Aurangabad. A Complaint was filed Aurangabad. Application, seeking dismissal of the Complaint. Registered Office of the Complainant was at Chitegaon, Aurangabad. Accused was transacting business from Delhi. Complainant-company also had its branch office at Delhi. Statutory notice had emanated from Aurangabad. Subject transaction took place at Delhi. Civil Suit in respect of the recovery of the cheque amount has already been filed in Delhi. Principles pertaining to the cause of action as perceived in civil law are not relevant in criminal prosecution.

Held: The cause of action to file a complaint accrues to a complainant/payee/holder of a cheque in due course if the dishonoured cheque is presented to the drawee bank within a period of six months from the date of its issue; If the complainant has demanded payment of cheque amount within thirty days of receipt of information by him from the bank regarding the dishonour of the cheque; If the drawer has failed to pay the cheque amount within fifteen days of receipt of such notice.The facts constituting cause of action do not constitute the ingredients of the offence Under Section 138 of the Act. Once the cause of action accrues to the complainant, the jurisdiction of the Court to try the case will be determined by reference to the place where the cheque is dishonoured. JMFC, Aurangabad has no jurisdiction over the offence. Appeal is dismissed.

Subject Matter : Clayton's Rule
Relevant Section : The rule is based upon the deceptively simple notion of first-in, first-out to determine the effect of payments from an account, and normally applies in English Law in the absence of evidence of any other intention. Payments are presumed to be appropriated to debts in the order in which the debts are incurred.
Key Issue : Whether the estate of the deceased was liable to Clayton to pay him?
Citation Details : HIGH COURT OF CHANCERY Devaynes Vs. Noble (1816) 35 ER 781
Summary Judgment :

Facts: Mr. Clayton had an account with a banking firm, Devaynes Dawes Noble and Co., that was a partnership rather than a joint stock company. The bank's partners were therefore personally liable for the debts of the bank. One of the partners, William Devaynes, died in 1809. The amount then due to Clayton was £1,717. After Mr. Devaynes' death, Clayton made further deposits with the bank and the surviving partners paid out to Mr. Clayton more than the £1,717 on deposit at the time of Mr. Devaynes' death. The firm went bankrupt in 1810.

Held: The estate of the deceased partner was not liable to Clayton, as the payments made by the surviving partners to Clayton must be regarded as completely discharging the liability of the firm to Clayton at the time of the particular partnerís death. It appears to me that this transaction stands quite detached from any other, and may be decided by itself. The exchequer bills having been sold in Mr. Devaynes's lifetime, contrary to the duty reposed in the partnership, and the money having been received by the partnership, the amount became a partnership debt, whether the individual partners were, or were not, privy to the sale.