SC on Scheme of Prosecution and Essential Ingredients of Section 138 of NI Act

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January 08, 2018

In a recent verdict pronounced by Two-Judge Bench of the Supreme Court, the Court elaborated on the scheme of prosecution under Section 138 of Negotiable Instruments Act, 1881 and also the ingredients that are elementary for constituting an offence under this provision.

Scheme of Prosecution under Section 138 of NI Act

While elucidating on the law relating to Dishonor of cheque, the Supreme Court stated that the scheme of prosecution in punishing under Section 138 of NI Act is different from the scheme of Code of Criminal Procedure. Section 138 of NI Act creates an offence and prescribes punishment. No procedure for the investigation of the offence is contemplated.

The prosecution is initiated on the basis of a written complaint made by the payee of a cheque. Obviously such complaints must contain the factual allegations constituting each of the ingredients of the offence under Section 138. Those ingredients are:

  • that a person drew a cheque on an account maintained by him with the banker;
  • that such a cheque when presented to the bank is returned by the bank unpaid;
  • that such a cheque was presented to the bank within a period of six months from the date it was drawn or within the period of its validity whichever is earlier;
  • that the payee demanded in writing from the drawer of the cheque the payment of the amount of money due under the cheque to payee; and
  • such a notice of payment is made within a period of 30 days from the date of the receipt of the information by the payee from the bank regarding the return of the cheque as unpaid.

It is obvious from the scheme of Section 138 of NI Act that each one of the ingredients flows from a document which evidences the existence of such an ingredient. The only other ingredient which is required to be proved to establish the commission of an offence under Section 138 of NI Act is that inspite of the demand notice referred to above, the drawer of the cheque failed to make the payment within a period of 15 days from the date of the receipt of the demand. A fact which the complainant can only assert but not prove, the burden would essentially be on the drawer of the cheque to prove that he had in fact made the payment pursuant to the demand.

Ingredients to Constitute an Offence under Section 138 of NI Act

That a person drew a cheque. The identity of the drawer of the cheque is necessarily required to be known to the complainant (payee) and needs investigation and would not normally be in dispute unless the person who is alleged to have drawn a cheque disputes that very fact.

That the payee of the cheque did in fact comply with each one of the steps contemplated under Section 138 of NI Act before initiating prosecution. Because it is already held by this Court that failure to comply with any one of the steps contemplated under Section 138 would not provide “cause of action for prosecution”.

Therefore, in the context of a prosecution under Section 138, the concept of taking cognizance of the offence but not the offender is not appropriate. Unless the complaint contains all the necessary factual allegations constituting each of the ingredients of the offence under Section 138, the Court cannot take cognizance of the offence.

That disclosure of the name of the person drawing the cheque is one of the factual allegations which a complaint is required to contain. Otherwise in the absence of any authority of law to investigate the offence under Section 138 of NI Act, there would be no person against whom a Court can proceed.

That there cannot be a prosecution without an accused. The offence under Section 138 is person specific. Therefore, the Parliament declared under Section 142 that the provisions dealing with taking cognizance contained in the Code of Criminal Procedure should give way to the procedure prescribed under Section 142. Hence the opening of non obstante clause under Section 142 of NI Act. It must also be remembered that Section 142 of NI Act does not either contemplate a report to the police or authorise the Court taking cognizance to direct the police to investigate into the complaint.

The entire case can be accessed here.