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Recent Amendment to the Negotiable Instruments Act, 1881
by Shantimal Jain

Cite as : (2003) 4 SCC (Jour) 30

All the commercial transactions largely depend on the banking system of the country and by and large the banking system carries out these transactions through paper instruments called the negotiable instruments.

In today's world where the use of cash in day-to-day's life is getting extinct and when people are using negotiable instruments in commercial transactions and plastic money for daily needs, it is extremely necessary that people's faith in such instruments be strengthened steadily.

Similarly in order to meet the challenges of the globalisation, liberalization and open market economy and to maintain the level of competitiveness, apart from other infrastructural facilities a sound banking system in the country is sine qua non. The "cheque system" is one of the important components of the sound banking system. A sound "cheque system" needs to be evolved by throwing the message around that its "dishonour never pays".

Prior to the amendment of the Negotiable Instruments Act, 1881, in the year 1988, whereby Sections 138 to 142 were inserted, the act of dishonour of cheque was treated as an offence under the Indian Penal Code. Since the penal law is based upon the principle of proof beyond doubt, the drawer of a dishonoured cheque was able to easily evade the rigors of punishment by raising flimsy doubts and the drawer of the cheque was left scot-free.

With the insertion of these provisions in the Act the situation certainly improved and the instances of dishonour have relatively come down but on account of application of different interpretative techniques by different High Courts on different provisions of the Act it further compounded and complicated the situation although on dishonour of cheques the trends of the verdicts of the Supreme Court unequivocally demonstrate that there is subconscious judicial pressure in the mind of the Judges which leans heavily in favour of the holder of the cheque.

Having regard to the working of these penal provisions on dishonour of cheques and the bottlenecks that have surfaced in strictly implementing these provisions, Parliament enacted the Negotiable Instruments (Amendment and Miscellaneous Provisions) Act, 2002 (55 of 2002)1, which is intended to plug the loopholes. This amendment Act inserts five new sections from 143 to 147 touching various limbs of the parent Act and the amendment Act has been recently brought into force on Feb. 6, 20032

Section 143 is intended to achieve speedy trial. By applying provisions of Sections 262 to 265 CrPC it enables a Judicial Magistrate or Magistrate of the First Class to conduct the trial. Then it contemplates summary trial and provides for continuous day-to-day hearing of the case till its conclusion and further stipulates that the trial is to be completed within 6 months from the date of filing of the complaint. It further empowers the Magistrate to pass a sentence for imprisonment for a term not exceeding one year or a fine not exceeding twice the amount of the cheque notwithstanding anything contained to the contrary in CrPC.

The new Section 144 deals with the service of summons. It would now enable the Magistrate not to follow the elaborate procedure for serving summons as required by Sections 61 to 90 CrPC. The sub-section of this section allows the summons to be served through the speedpost and notified private couriers besides the normal process. Precisely speaking, this section has brought about the concept of "constructive service". This provision is analogous to the principle incorporated in Section 27 of the General Clauses Act, 1897. According to this where the sender has dispatched the notice by post with correct address written on it, then it can be deemed to have been served on the sender unless he proves that it was really not served. This is the position which got endorsed by the Supreme Court in K. Bhaskaran case3 Similarly the Andhra Pradesh High Court in the case of Y. Sriniwasa Reddy held that notice sent through registered post as well as under the certificate of posting was sufficient service. The new provisions take care of these two case-laws. Also on refusal to take delivery of the summons, the Court can declare that the summons have been duly served.

Section 145 contemplates evidence on affidavit and it appears while bringing this amendment the Government had in its mind the ratio decidendi in the case of BIPS System Ltd. v. State, of Delhi High Court. According to this section the complainant can give his evidence by way of an affidavit and the same may be attached with the complaint and if the accused wants to contradict the contents of the affidavit the complainant may be called for examination.

Then Section 146 provides for presumption to bank memorandums. Earlier whenever a question arose whether there was insufficient funds in the account of the drawer of the cheque, it was conceived to be a matter of evidence being a question of fact and onus was placed on the complainant and for discharging this onus the bank personnel was to be examined. This naturally delayed things. It has therefore been provided that based on the bank slip the Court would presume the fact of dishonour, unless and until such fact is disproved.

Now lastly, Section 147 provides for compounding of offences under this Act. There was a difference of opinion in different High Courts on the question whether offences under the provisions of the Act were compoundable or not. The Kerala High Court's view was in the negative whereas the view of the Andhra Pradesh High Court was in the affirmative. Unfortunately the matter did not reach the Apex Court. Parliament therefore has resolved the controversy and provided that offences under the Act would be compoundable.

Besides this Sections 138, 141 and 142 have also been amended by doubling the imprisonment term from one year to two years and the period of time to issue demand notice to the drawer from 15 days to 30 days and by providing immunity from prosecution for nominee director. It has also been provided that the Magistrate can condone the delay in filing the complaint in special and peculiar circumstances.

An objective perusal of the aforesaid amendment would reveal that the Act has now become a self-contained statute wherein an "in-house mechanism" has been provided in the Act itself which would take care that the trial is a speedy one, no undue delay occurs, the bouncer is booked and he does not escape the rope on flimsy grounds and that a more deterrent punishment is provided. Similarly the service of summons has been made easy and the offence is made compoundable. It therefore follows that the amendment has addressed itself squarely to the shortcomings that were perceived and exposed hitherto in its administration right from the 1988 amendment. Simultaneously procedural norms have been simplified and some "determinatives" have been put forth which would take care of every conceivable contingency, which could permit the bouncer to rock the boat of proceedings during trial as all the bottlenecks have been unplugged. Let "bouncers" be more beware now.

† Vice-President (P), Rajasthan Textile Mills, Bhawanimandi 326 502 Return to Text

  1. See full text at 2003 Current Central Legislation, Part II, p. 35 Return to Text
  2. Vide S.O. 140(E) dt. 6-2-2003, see 2003 Current Central Legislation, Part III, p. 130 74 Return to Text
  3. K. Bhaskaran v. Sankaran Vaidhyan Balan, (1999) 7 SCC 510 Return to Text
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