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Cheque Cases: Calcutta HC, Cheque should be presented for encashment before the drawer bank to attract Section 138 [Read Judgment]

Team SoOLEGAL 7 Sep 2017 10:16am

Cheque Cases: Calcutta HC, Cheque should be presented for encashment before the drawer bank to attract Section 138 [Read Judgment]

The Calcutta High Court has reiterated that a cheque must be presented for encashment before the bank on which it was drawn for attracting penal liability under Section 138 of the Negotiable Instruments Act (NI Act).

The judgement was rendered by Justice Joymalya Bagchi who held that return of a cheque by the bank of the payee will not attract Section 138.

The dispute emerged after a cheque drawn in favour of the complainant was returned by his bank with the endorsement that the “account name & cheque name differs/no fund”.

The Additional Chief Judicial Magistrate had allowed the initiation of proceedings under the NI Act. An appeal against the same was preferred by the petitioners on the ground that the cheque was never presented for encashment before the bank on which it was drawn.

Apart from a claim for dishonour of cheque, the complainant had also submitted that there was collusion between his bank and the petitioners, who also included his former employer. It was argued that the former employer had intentionally not written the complainant’s name on the cheque in order to harass him.

The complainant averred that the endorsement in the return memo is an incorrect one as there is no divergence in the name of the payee and the account name maintained with his banker. The Supreme Court and the Consumer court had been approached on these aspects.

The High Court, however, noted that these matters did not merit consideration by the court as the basic ingredients of the offence under the NI Act were not made out.

The Court noted,

Section 138 of the N.I. Act, inter alia, makes the dishonour of a cheque punishable in law provided the cheque upon presentation for encashment before the bank on which it is drawn is returned unpaid due to insufficiency of funds and the drawer of the cheque upon receipt of notice of dishonour does not pay the value of the dishonoured cheque within the stipulated time.”

Hence, the condition precedent for attracting penal liability under Section 138 of the Act is that the cheque must be presented for encashment to the drawer’s bank. In this regard, the court also placed reliance on the case of Shri Ishar Alloy Steel Ltd. v.Jayaswals Neco Ltd.

In the instant case, the cheque was presented before the banker of the opposite party/complainant, namely, Canada Bank (payee’s bank) who returned the same with the endorsement “account name & cheque name differs/no fund”. The court observed that this does not amount to presentation of the cheque for encashment before the bank of the petitioner on which it was drawn, as mandated by Section 138.

Given these facts, the court reiterated,

If a cheque is returned by the banker of the opposite party without presenting the same before the bank on which it is drawn for encashment, the question of dishonour of the cheque due to insufficiency of funds in the drawee’s account shall not rise at all.”

The court also noted that this conclusion is further fortified by the certificate issued by the petitioner’s banker that he had sufficient amount in his account at all material points of time when the presentation was made.

On this ground, the court quashed the impugned proceedings of the lower court.

Read the judgement here:

Section 138   Justice Joymalya Bagchi   cheque cases   Calcutta High Court  

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