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Published: Fri, 02 Feb 2018
Bouncing of Post Dated Cheques
According to S.6 of the Negotiable Instruments Act, 1881 (herein after called ‘the Act’), a ‘cheque’ has been defined as “a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand and it includes the electronic image of a truncated cheque and a cheque in the electronic form  .”
A cheque must bear a date because the mandate of the customer to the banker given in the cheque becomes legally effective on the date mentioned therein. Now, a post-dated cheque is a one in which the drawer (or any holder) mentions a date on it, which is subsequent to the date on which it is drawn. Such a cheque, though no invalid, becomes effective only on the date mentioned therein  . So, the banker should refrain from payment of a post-dated cheque before the date mentioned therein otherwise he may incur several liabilities  .
In S. Hajee Mohamed Haneef Saheb and Co. v. S. Abu Bucker  , it was held that:-
A post-dated cheque is as much negotiable as a cheque for which payment is due immediately on presentation, and there is no authority for holding that a person in whose favour such a cheque is endorsed before the date of payment is not a holder in due course or that such an assignment or endorsement is not enforceable at the instance of the assignee or endorsee.
Although there is no provision in the Act specifically allowing post-dated cheques, like S.17(2) of the English Bill of Exchange Act, 1882, there is nothing forbidding them and para 2 of S.5 contemplate (as indeed it must) the making of a bill of exchange at a future date. The cheque as drawn therefore is a cheque in proper form and therefore, a bill of exchange within the meaning of the Act  .
CURRENT DEBATE ON BOUNCING OF POST-DATED CHEQUES
The provision regarding bouncing of cheques is provided in S. 138 of the Act which says:-
“138. Dishonour of cheque for insufficiency, etc., of funds in the account-
Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and….  “
It is well-known today that S.138 has been a highly litigious provision in the banking law circuit. With specific regard to bouncing of post-dated cheques, yet another case has created flutters among the legal circuit very recently, i.e. the Bombay High Court’s decision in Ramkrishna Urban Cooperative Credit. Society Ltd. v. Shri Rajendra Bhagchand Warma  (herein after called the ‘Warma case’). In this case, the Respondent had taken loan for his business from the Appellant bank and for satisfaction of the loan; some blank cheques were issued to the Appellant. It was also agreed by the Respondent that he shall pay the amount from time to time in installments. Later, at the time of presentment of the cheque by the appellant, one of these cheques was dishonoured on the grounds of insufficiency of funds.
The court was of the view that u/S. 138 the cheque drawn must be for the discharge, in whole or in part, of any debt or other liability. So the debt or other liability must be in existence when the cheque, whether blank or post dated was issued. So, it was held that the cheque was not towards any existing debt or liability, on the ground that the respondent had issued the cheque concerned as security for loan before loan amount was disbursed. In case of loan transaction, borrower is in need of money and therefore he borrows loan amount with understanding that the loan amount would be repaid in lumpsum on a future date or in installments from particular future date onwards periodically, with or without interest. It is not transaction of loan, if the amount is to be repaid the moment it is paid to borrower. So, the court held that such a situation is not hit by S.138 of the Act  .
THE DICHOTOMY OF BOUNCING OF POST-DATED CHEQUES
A post-dated cheque becomes a cheque for the purpose of S.138 of the Act only on the date mentioned thereon and in between the date of drawal of the cheque and the date mentioned in the cheque, it is only a bill of exchange. The period of six months mentioned in proviso (a) to S.138 begins to run only from the date mentioned in the cheque and not from the date of drawal of the cheque  .
It is an established law that for attracting S.138 of the Act, the cheque should have been issued in discharge of a debt or liability. For a criminal prosecution it has to be shown that liability was in existence at the time the cheque was issued and also at the time it became mature for payment  . In this scenario, situation is similar to a ‘simple cheque’. For instance, in Venugopalan v. Moosa  , the complainant alleged that the respondent/accused had borrowed an amount of Rs. 20,000/- from him and had issued a post-dated cheque for Rs.22,000/- for the due discharge of the said liability (including interest). The cheque, when presented for encashment, was dishonoured on the ground of ‘insufficiency of funds’. Thereafter, the complainant came to court after scrupulously observing the statutory time table. The issue was whether the cheque was issued for the due discharge of a legally enforceable debt/liability because of the additional fact that in the complaint, the complainant had mentioned that he had given the loan to the defendant on a ‘guarantee’ of the post-dated cheque concerned  . Now the Kerala HC said that rather than looking at the nomenclature of the word ‘guarantee’ mentioned in the complaint, the right approach would be to consider the ‘nature’ of the complaint. Thus, the court held the respondent liable u/S.138.
‘BLANK’ POST-DATED CHEQUES
A blank post-dated cheque is a one which has a certain future date of maturity mentioned thereon but it doesn’t have the amount written on it (though it has been duly signed by the drawer)  . I think that such a cheque is not even a bill of exchange during the period of from the date when it was drawn till the date of maturity written on it; because of the fact that under S.5 of the Act, for an instrument to be a ‘bill of exchange’ it has to have a ‘certain sum’ of amount written on it. Such a blank cheque doesn’t constitute a cheque and thus S. 138 doesn’t apply in this situation  .
Now, in Warma case, blank post-dated cheques were issued prior to disbursement of loan as a collateral security for loan which was sanctioned. According to the court, in such a case there was no existing debt or liability when the cheque is issued. So, in the facts and circumstances of the case, it was held that the case does not fall within four corners of offence punishable under section 138 of the Act  .
To top-up the foregone case, in Taher N. Khambat v. Vinayak Enterprises  , a blank signed cheque (though not post-dated) was given as security but the court held that the provisions of S.138 could not apply to the instant case situation. It was opined that such a cheque was not issued voluntarily in discharge of a debt or legal liability. The court held that if it holds otherwise, then every creditor would abuse the provisions of this section by obtaining blank cheques and putting the debtors in fear of prosecution and insist on discharge of the debts at any time. Though the fear expressed by the court is practical, but with due respect, it is difficult to see that the cheque was not issued in respect to a debt due from the drawer  .
CRITIQUE OF WARMA CASE
ILLUSORY DISTINCTION BETWEEN CHEQUES
According to Karnataka High Court in some of its cases  , a distinction between issue of cheque as security or in repayment of debt is illusory on the ground that where a cheque is prevented for payment according to its apparent tenor and dishonoured, it amounts to an offence under S.138 whatever may be the background story of the chequer. So, according to the court, a cheque whether issued for payment of a debt or as security, makes no difference in law. But in Warma case, the court accepted the observation made in Pawan Enterprises v. Satish H. Verma  that if the act of a person in discharge of liability is not done, then security comes in picture and if the act in discharge of a liability is performed then security would not have any legal force  .
It is humbly submitted that in Warma case, the court wrongly relied on the afore-said distinction as I think that if a cheque can’t be recognized as an instrument against a debt or liability, then it can’t be said that it has been kept as a ‘security’ because it would not be of any use to the creditor.
CASE DECIDED ON ADVERSE INFERENCE
In the said case, the court itself agreed to the findings of the trial court  that despite repeated opportunities having been given to the appellant bank, they didn’t produce the accounts’ extracts for the relevant period  inspite of the records being with them. Since it could not be sufficiently proved whether the concerned amount that was put on the cheque had become due or not, an adverse inference was drawn by the trial court against the appellant and thus, it exonerated the respondent from the purview of S.138. This was a strong basis for the trial court to acquit the respondent and I think that this was the primary reasoning of the High Court in this case for acquitting the respondent.
So, in my opinion, this was the secondary reasoning of the court that the said cheque was kept as a security but not against a debt payable to the appellant.
CORRECT REASONING GIVEN FOR BLANK POST-DATED CHEQUES
The High Court took cognizance of the object of the amendment and introduction of Chapter XVII in the Act  which was mainly to encourage all major transactions including commercial or business transactions through cheques and to enforce credibility and acceptability of cheques in settlement of liability in general  . That also brings in transparency in transactions and discourages creation of black or unaccounted money through evasion of taxes or other malpractices. So, provisions like S.138 of Negotiable Instruments Act are salutary to give reliability, credibility and acceptability of negotiable instruments like cheques in daily life  .
However, the court said, that the object was not to provide effective and speedy remedy for recovery of loans. Law makers must not have intended or imagined that money lenders or banks would obtain blank or post dated cheques while sanctioning/disbursing loans as securities and would use them to make debtors/borrowers to repay loan under threat of prosecution and punishment under S. 138.
CONCLUDING REMARKS AND SUGGESTIONS
A post-dated cheque is only a bill of exchange from the time when it is written or drawn till the date it becomes mature (i.e. the date that has been put on it). At this date of maturity, it becomes payable and becomes a ‘cheque’. The purpose of Amending Act is to inculcate faith in the efficacy of banking operations and giving credibility to negotiable instruments in business transactions and in order to promote efficacy of banking operations. World trade is carried through banking operations rather than cash transactions.
The law seeks to protect the interests of the drawer of the post-dated cheque against any harassment by the creditors in case the former is asked to furnish blank post-dated cheques; as at the time it is drawn there is no liability due on him. But the law also seeks to protect the interest of the creditors (who have accepted the post-dated cheques in good faith) if the debtors misuse the post-cheque as a measure to defer the payment; as held by the Supreme Court in Goaplast Pvt. Ltd. v. Shri Chiko Ursula D’Souza  where the debtor gave a stop-payment order to the bank with a malafide intention of avoiding payment. In fact, acceptance of a post-dated cheque is an accommodation given to the debtor by a creditor and the former can’t be allowed to abuse this faith.
But, as seen from the Warma case, if a ‘blank’ post-dated cheque is taken by the creditor from the debtor before or during the disbursement of loan, then it amounts to a measure threatening the debtor for a criminal prosecution. So, in such cases, the right approach is not to allow the creditor to write an amount in the cheque on his own otherwise there is a high risk of harassment of debtor.
What is not plausible—
According to a report, as of November 2009, there were 38 lakh cheque bouncing cases pending in courts across the country; and this number is ever increasing  . It is interesting to note that Qatar had also been facing the same problem of backlog of cases for quite a long time; as a result of which it is looking forward to abolish the system of post-dated cheques from May 2010  . But in my opinion, following this model will not suit the Indian scheme of things owing to huge dependency on the post-dated cheques in the banking transactions/ trade circuit.
If a post-dated cheque is not blank, that is to say that if a certain amount is written on it then in my view, it should not be derecognized merely on the ground that no liability or debt was standing due when it was being drawn because no disbursement of loan had been made. It is because of the fact that the parties may have agreed to use these cheques as EMIs for repaying the loan in future. So, it is suggested that the words ‘any liability’ in S.138 should be construed in a manner that it encompasses ‘any certain liability which might become due in future’.
However, we need to treat a cautious line by preventing the situation that arose in Pawan Enterprises case  where the amount due at the time of presentment was lower than that written on the post-dated cheque. In order to do so, an amendment in S.138 is suggested which would provide that in case of bouncing of a ‘non-blank’ post-dated cheque, first of all, a ‘show-cause notice’ needs to be given by the payee to the debtor (followed by a ‘notice to pay’ after a ‘certain period’ in case the debtor fails to provide details of the actual debt remaining  ); thereby giving the opportunity to the latter to check the quantum of amount due. Moreover, in doing so, the rights of a holder in due course should also be left undisturbed.
The successful model of fast-track courts as suggested by Law Commission should be followed; wherein the 1,735 fast-track courts of sessions judges were set up for long-pending cases and they disposed off 10.66 lakh cases between 2000 and 2005  . It would also be a good option to seek services of retired Supreme Court/ High Court judges for such fast-track courts in order to improve the efficiency and quality of judgments/ awards.
The proposal of The International Consumer Rights Protection Council for the creation of a credit rating body that would blacklist repeating offenders can also be a good option. It also requires the certification of post-dated cheques by the bank so that it can pay the payee by debiting the issuer’s account or confiscating the property; in case such a cheque bounces  .
Specialized Negotiating Offices may also be set up for facilitating negotiations between the parties  so as to save time and clear the majority of ‘trifle cases’.
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