Presumptions under Section 138

Negotiable Instruments Act, 1881

The Negotiable Instrument Act was drafted in 1866 and came in force in 1881. It is originally a colonial law which is still widely practiced in India. According to Section 13 of the Negotiable Instrument Act, “Negotiable instrument means a promissory note, bill of exchange or cheque payable either to order or to bearer. Negotiable Instrument is a transferable, signed document which promises to pay the bearer a certain sum of money at a future date. Let us understand this with a help of example. Suppose A purchases goods from B worth of Rs 10,000 INR and A is unable to pay for the purchases in cash, or suppose he doesn’t want to do so, A can give a signed document to B which will act as promise to pay B either on a specified date or on demand.  Once negotiable instrument is transferred, the holder of the document obtains the full legal right to the instrument.

Section 138 of the Negotiable Instrument Act

Section 138 of the NI Act deals with the punishment of dishonour of cheque. Dishonour of cheque is not a criminal offence but if the below mentioned ingredients are fulfilled in a case than it might become an offence under Section 138.

  • The cheque has to be drawn by the accused on a bank account which is maintained by him with a particular banker in a bank.
  • The amount of money mentioned in the cheque is for discharging the liability either wholly or partially.
  • The cheque is dishonoured meaning that it is returned due to insufficient funds or is returned because the amount contained in the cheque exceeds the arrangement made with the bank.

The offence is said to be committed at the exact moment the cheque is returned unpaid to the holder or drawer of the cheque.

These conditions will be fulfilled provided:

  • The cheque has been presented to the bank within 6 months from the date on which it is drawn or the validity period
  • The holder makes a demand for the money by giving a written notice to the drawer of the cheque, within 30 days of the receipt of information from the bank regarding the return of the cheque as unpaid.
  • The drawer of cheque fails to make the payment of money to payee or to the holder, within 15 days of the receipt of the said notice.

Presumptions under the NI Act

In the Negotiable Instrument Act, there are presumptions mentioned under Section 118 and Section 138. These sections mentions that the holder of the cheque withdraws the cheque for the purpose of discharge of debt or for liabilities. According to Section 118 of the NI Act, until the contrary is proved, the following presumptions shall be made:

  • Consideration: Presumption is that every negotiable instrument was made for consideration and when such instruments are accepted, transferred, or even endorsed, then it was done for such consideration.
  • Date: Presumption is that it was drawn on such date as is mentioned on the face of negotiable instrument.
  • Time of Acceptance: Presumption is that it was accepted within a reasonable period after the date of its execution and before its maturity.
  • Time of Transfer: Presumption is that every transfer as regards a negotiable instrument was affected before the date of its maturity.
  • Stamp: Presumption is that a promissory note, bill of exchange or cheque which got lost was duly stamped.
  • Order of Endorsements: Presumption is that the endorsements appearing upon a negotiable instrument were made in the order in which they appear thereon.
  • Holder in due Course:  It is presumed that every holder of a Negotiable instrument took it in a good faith and for consideration. The person who is accused must prove that the holder of the Negotiable instrument is not a holder in due course.
  • Proof of protest: Section 119 of NI Act states that in a suit upon an instrument which has been dishonoured, the court shall on proof of the protest, presume the fact of dishonour, unless and until such fact is disproved.

Section 139 of the Negotiable instrument Act says that “It shall be presumed, unless the contrary is proved, that the holder of a cheque received the cheque of nature referred to in Section 138 for the discharge, in whole or in part, of any debt or other liability.” This presumption is rebuttable by the accused by leading evidence that there was no debt or liability. Under the law, the accused is given couple of opportunities to prove that he is not guilty. Firstly, when the bank informs him about insufficiency of funds and secondly, he/she can raise their defence at the time of notice served under Section 138 of the NI Act. If they fail to do so, then the court presumes that they are guilty and starts their process.

Cases relating to presumption under Section 138

Dalmia Cements v. Galaxy Trading Agencies

Dalmatia Cements v. Galaxy Trading Agencies is a landmark case under the Negotiable Instruments act, where presumptions where presumptions were mentioned and were an important part of the judgement. This case is equally important since within the judgement, the reasons behind the enactment of the NI Act were also mentioned. In this case, the facts were around dishonouring of a cheque, because of which, the accused was informed of the same with a notice. When it was received by the complainant, the deadline by which to file a complaint was about to expire. This happened not only once but was repeated a second time when the accused failed to provide the amount that the accused should have. The Court, when giving its judgement on the facts and arguments that were laid out, said that Section 138 of the NI Act existed in concern of the infringement that would arise on the legal rights of any person whose payment has not been issued or completed, and further a situation arose wherein it would be impossible to issue said person’s payment, then the Section 138 should work the way it was meant to in line with objective of the NI Act itself. Therefore, in the judgement regarding Dalmatia Cements v. Galaxy Trading Agencies, the Court ruled for actions to be carried out against the respondent as according to the Act.

Coming to the issue of presumptions in this case, it is referred to in Section 139 regarding presumptions that unless there is proof of the contrary, the holder received the cheque (nature of the same is referred to in Section 138) for the discharge in whole or partiality of some debt or any similar kind of liability. Under the sections, to consider the dishonouring of the cheque as an offence, the party that is aggrieved by the situation (non-payment in this case) has to present the cheque to the bank within six months from which the cheque is drawn or within the cheque’s validity (whichever is earlier) and the holder (aggrieved party here) gives a notice to the drawer of the cheque in which a demand for the payment of the amount of the cheque is made within 15 days of him being information that the cheque is unpaid and yet, the drawer of the cheque still fails to make the payment.

Triyambak S. Hegde v. Sripad

Triyambak S. Hegde v. Sripad is another case regarding presumptions under sections of the NI Act wherein a cheque is dishonoured. The respondent was known to the appellant for a few years, and the respondent approached the appellant with the intention of selling him a property he claimed he owned. The appellant agreed to purchase it for INR 4,00,000/- and an agreement was made wherein the respondent was given payment of an advance amounting to INR 3,50,000/-. Subsequently, the appellant found out that the said property was in the name of the father of the respondent and the respondent himself did not possess the authority to sell it. Thus, the appellant demanded the return of the INR 3,50,000/- he had paid, and in view of the same the respondent issued a check worth INR 1,50,000/- which constituted only a partial amount. When the appellant attempted to realize the cheque, he came to know the cheque was dishonoured with the marking “insufficient funds”. The appellant filed a notice regarding the cheque, but the respondent failed to respond.

In the judgement, it was held that the respondent is to be convicted, and he is liable to pay a fine of INR 2,50,000/-, from which amount a total of INR 2,40,000/- is to be paid to the appellant as compensation.

The issue of presumptions is very critical in Triyambak S. Hegde v. Sripad, since they were referred to several times and presumptions of different nature were referred to in arguments and especially in the judgement. Firstly, it was presumed that the cheque issued to the appellant which formed the basis of the appellant’s complaint was issued in order to pay the liability owed by the respondent towards the appellant, which was constituted under the presumption in favour of the holder. Furthermore, Presumptions as to negotiable instruments were referred to, including the case K. Bhaskaran v. Sankaran Vaidhyan Balan & Anr, wherein it was held that the cheque was drawn for consideration on the date which the cheque bears, and the above presumption was also held and referred to once more.

References

Indiankanoon.org. 2021. Dalmia Cement (Bharat) Ltd vs M/S.Galaxy Trades & Agencies Ltd. … on 19 January, 2001. [online] Available at: <https://indiankanoon.org/doc/60864/&gt; [Accessed 16 November 2021].

Indiankanoon.org. 2021. K. Bhaskaran vs Sankaran Vaidhyan Balan And Anr on 29 September, 1999. [online] Available at: <https://indiankanoon.org/doc/529907/&gt; [Accessed 16 November 2021].

Indiankanoon.org. 2021. Triyambak S.Hegde vs Sripad on 23 September, 2021. [online] Available at: <https://indiankanoon.org/doc/53363470/&gt; [Accessed 16 November 2021].

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