Has your tenant’s cheque bounced?
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