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Cheque Bounce Under the Negotiable Instruments Act

The Negotiable Instruments Act, 1881, governs the legal framework for the use of negotiable instruments such as cheques in India. One of the most common issues under this act is the dishonor of cheques, popularly known as a “cheque bounce.” This brief will provide an overview of cheque bounce cases under the NI Act and highlight some recent landmark judgments that have shaped the legal landscape.

Key Provisions of Section 138:

Notice of Demand: The payee must send a legal notice to the drawer within 30 days of the dishonor of the cheque, demanding the amount.
Drawer’s Obligation: The drawer has 15 days from the receipt of the notice to repay the amount mentioned in the notice.
Default in Payment: If the drawer fails to make the payment within the stipulated time, the payee can file a complaint before the appropriate court.

Dashrath Rupsingh Rathod v. State of Maharashtra (2014): In this landmark case, the Supreme Court clarified that the territorial jurisdiction for filing a complaint under Section 138 is limited to the place where the drawee bank is located. This judgment helped streamline the litigation process by preventing cases from being filed in multiple jurisdictions.
Damodar S. Prabhu v. Sayed Babalal H. (2010): This judgment reinforced the strict liability principle enshrined in Section 138. The court held that even in cases where the drawer claims that the cheque was issued as a gift or without any liability, the liability to pay remains, and the burden of proof lies with the drawer to establish his innocence.
Dashrath v. Anandilal (2018): In this case, the Supreme Court provided clarity regarding the requirement of issuance of separate notices for successive dishonors of cheques. It ruled that a single notice can cover successive dishonors if they are part of the same transaction.
Meters and Instruments Private Limited v. Kanchan Mehta (2018): The Supreme Court ruled that the person who signs the cheque, as well as the authorized signatory of the company, can be made vicariously liable under Section 138, ensuring that responsible individuals within a company are held accountable.

The Negotiable Instruments Act, 1881, plays a crucial role in regulating financial transactions involving cheques in India. Recent landmark judgments have provided much-needed clarity and legal precedent to resolve cheque bounce cases more efficiently. It is essential for both payees and drawers to be aware of their rights and obligations under the NI Act to ensure the smooth functioning of financial transactions and maintain trust in the banking system.