Lessons You Must Learn From These Cheque-Bounce Cases

Grave financial offences may have led to some corporate giants in India losing all they had, real estate developers included, but the “minor” offenders did not go unnoticed either. Recently, the former chief financial officer of beleaguered Kingfisher Airlines was sentenced to an 18-month imprisonment by a court in connection with two cheque bounce cases filed against him and boss Vijay Mallya by the GMR Hyderabad International Airport Ltd.

The above example tells us it would be certainly a mistake to take matters related to cheque bounces lightly, especially after Finance Minister Arun Jaitley in his Budget Speech said the government might amend the Negotiable Instruments Act suitably to “ensure that the payees of dishonoured cheques are able to realise the payments”.  Certain articles in the media also reported that the Centre may amend rules to make cheque dishonouring a non-bailable offence.  While that has yet to be done, courts across the country have passed several verdicts concerning the matter to sensetise people about cheque-related offences.  

In case you issue a cheque to your developer, for instance, and the bank is unable to process your request owing to “insufficient amount” in your account, you may be in for trouble. Repeating this offence could land you in jail, recent examples show, apart from burdening you with a monetary penalty.

You may also like to read: Here's How Cheque Bounces Can Hamper Your Credibility

“In order to ensure the credibility of negotiable instrument like cheque, which is part and parcel of day-to-day life of any person while indulging in any sort of transaction, deterrent theory of punishment has to be invoked,” a Delhi court recently ruled, with the judge adding: “I do not find any infirmity in the sentence of imprisonment as well.”

Let us look at certain other recent ruling pertaining to cheque-bounce cases. Before we begin, it is important to note here that:

• The person who issues a cheque is legally known as the drawer.
• The institution or person directed to pay is the drawee.
• The person to whom the money is by the instrument directed to be paid is the payee.

Double whammy

The Delhi High Court (HC) has ruled that in a cheque-bounce case, civil and criminal cases can run simultaneously.

Case study: In the Kirti Premraaj Jain vs Moser Baer Clean Energy case, Premraaj issued three undated cheques to the company for purchase of land in Gujarat in 2011. Owing to legal issues, the sale could not materialise. When the payee tendered the three cheques for realisation, the bank was unable to process the request, owing to insufficient funds or stoppage of payment, as a result of which the cheques bounced.  The company filed a civil suit on January 30, 2013, which is pending in the Vadora Civil Court. The payee also filed a suit under the Negotiable Instruments Act in the Saket District Court, Delhi.

Jain moved the Delhi HC to quash the summons of the Delhi court, arguing that the cheques were security against advance, and were not legally enforceable debt.  The HC dismissed the plea, saying all the ingredient of an offence were present in the case. It also ruled that the civil suit in Gujarat and the criminal case in Delhi can run simultaneously.

QUESTIONS APLENTY

Cheque-bounce related questions are mind-boggling for courts, too, it seems. The Allahabad High Court recently referred to a larger Bench on questions pertaining to bounced cheques. Courts across the country have different stances over the matter.

Case study: Suppose someone issued you a cheque and it bounced. You approach the city court, which acquits the offender. Now, where should you as an aggrieved party appeal—the session court or the high court f that state? This is the question that even the Allahabad HC has no obvious answer to.

In the Anil Kumar vs State of UP case, the acquittal of the offender was challenged by the payee before the session court. After the session court refused to entertain the plea, saying it had no jurisdiction over the matter, the payee appealed to the HC. It was argued that the session judge's view was wrong. The single judge Bench of the Allahabad HC found the law was not clear on the matter, and referred the matter to a larger Bench.

Serving twice?

The Supreme Court has ruled that if multiple cheques are issued for a common transaction and they bounce, the punishment of imprisonment could run concurrently, and not one after the other.

Case study: In the Shyam Pal vs Dayawati case, the latter borrowed Rs 5 lakh two times from the former. Pal issued Dayawati two cheques with consecutive numbers, but those bounced owing to insufficient funds.  The payee filed a suit under Section 138 of the Negotiable Instruments Act in a trial court that sentenced the offender to a 10-month imprisonment for each bounce—this makes it a jail term of 20 months. The drawer appealed that both the complaints had arisen out of a successive transaction, so the punishment should run concurrently, and not separately. His appeal was rejected by both the appeal court and the Delhi HC.

The Supreme Court, however, set aside the previous orders and ordered that the accused would undergo the sentence concurrently. According to the SC, the Criminal Procedure Code “confers discretion on the judge and it should be exercised according to the circumstances of the case”.

Also read: What If A Cheque Bounces?