Has your ten­ant’s cheque bounced?

HT Estates - - HTCLASSIFIEDS - Payal Chawla

Ever been asked to give a de­mand prom­is­sory note to­wards se­cu­rity? Have your rent cheques ever bounced? Ever un­der­stood their im­pli­ca­tions? Cheques and de­mand prom­is­sory notes are ne­go­tiable in­stru­ments and are cov­ered by the Ne­go­tiable In­stru­ments Act, 1881 (the Act).

Both lessor/lessee as well as all third par­ties tak­ing or giv­ing ne­go­tiable in­stru­ments are ad­vised to take care in un­der­stand­ing the im­pli­ca­tions of th­ese in­stru­ments. The law at­taches great cre­dence to them and their abuse can in­vite pe­nal con­se­quences in cer­tain in­stances

Cheque bounc­ing, for in­stance, is pun­ish­able un­der Sec­tion 138 of the Act. An of­fence un­der Sec­tion 138 is pun­ish­able with im­pris­on­ment up to two years and fine up to twice the cheque amount.

In or­der to con­sti­tute an of­fence of cheque bounc­ing, there must be a debt/li­a­bil­ity ac­cru­ing in favour of the payee. So, for in­stance, if a cheque was given as a gift to a third party and the cheque was sub­se­quently dis­hon­oured, since there was no debt ac­cru­ing to such third party, the same would not con­sti­tute an of­fence un­der Sec­tion 138. On the other hand, a cheque is­sued in re­spect of rent would amount to a debt/li­a­bil­ity and hence, would be an of­fence.

The payee of the cheque must take care to in­sure that the cheque is pre­sented for pay­ment within a pe­riod of six months from the date of its is­suance. If the cheque is dis­hon­oured, care must be taken to is­sue a no­tice as pre­scribed by Sec­tion 138, within 30 days of re­ceipt of in­for­ma­tion by the payee that the cheque has bounced.

If, for any rea­son, the no­tice has not been is­sued within the time­line pre­scribed by Sec­tion 138, the cheque must be rep­re­sented to the bank and upon its dis­hon­our (again) the pro­ce­dure pre­scribed un­der sec­tion 138 must be strictly fol­lowed. Since the sec­tion pro­vides for pe­nal con­se­quences, it is im­per­a­tive that the in­gre­di­ents of this sec­tion are strictly fol­lowed.

To the ex­tent, a no­tice is­sued on the 31st day would be bad in law.

Upon the re­ceipt of no­tice by the per­son who is­sued the cheque, if the per­son fails to pay the cheque amount within 15 days thereof, the payee must, within one month there­after, file a com­plaint as pre­scribed un­der Sec­tion 142 of the Act. One can­not stress enough that time pre­scribed un­der th­ese sec­tions is cast in stone and must be strin­gently ad­hered to.

One of is­sues that has been the cause of much con­tro­versy over the years has been where such com­plaints must be filed. The Supreme Court in the mat­ter of K Bhaskaran v Sankaran Vaid­hyan Balan, in 1999, had pre­vi­ously pre­scribed five pos­si­ble ju­ris­dic­tions where the cause of ac­tion could arise in a cheque bounc­ing sit­u­a­tion.

Over the years, the con­tro­versy re­fused to die down and was re­cently laid to rest by a three- judge bench in the mat­ter of Dashrath Rups­ingh Rathod v State of Ma­ha­rash­tra, where the apex court said: “We hold that the place, si­tus or venue of ju­di­cial en­quiry and trial of of­fence must log­i­cally be re­stricted to where the drawee bank, is lo­cated”.

A de­mand prom­is­sory note is a prom­ise to pay in writ­ing, which con­tains an un­con­di­tional un­der­tak­ing, to pay a cer­tain sum of money to a cer­tain named per­son, on de­mand. The es­sen­tial i ng re­di­ents of a de­mand prom­is­sory note is that the prom­ise to pay must be un­con­di­tional on de­mand. The prom­is­sory note must be in writ­ing and signed by the promisor. The amount and per­son must be cer­tain. It is crit­i­cal that a de­mand prom­is­sory note be ad­e­quately stamped, else the same would be inad­mis­si­ble, as ev­i­dence, in court.

Lessors/lessees and third par­ties ex­e­cut­ing/re­ceiv­ing th­ese in­stru­ments are ad­vised to give due at­ten­tion to their draft­ing and im­ple­men­ta­tion.


In or­der to con­sti­tute an of­fence of cheque bounc­ing, there must be a debt/li­a­bil­ity ac­cru­ing in favour of the payee

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