This Blog is written By Miss Sivapuram V. L. Thejaswini Student of Alliance University, Bangalore
A Negotiable Instrument is a
piece of paper that entitles a person to a sum of money and is transferrable
from person to person by mere delivery ( or ) indorsement and delivery. The
person to whom it is so transferred becomes entitled to the money and also to
the right to further transfer it.
The general principle relating to the transfer of property is that no one can become the owner of any property unless
he purchases it from the true owner ( or ) with his authority. The maxim of law
is ‘Nemo dat quod nonhabit’ (No one can
transfer a better title than he himself has). Negotiable Instruments,
however, constitute an exception to this principle. For a person who takes a
negotiable instrument in good faith and for value becomes the true owner even
if he takes it from a thief ( or ) finder. In the words of ‘Willis J’
‘
A negotiable instrument is one, the property in which is acquired by anyone who
takes
it bona fide and for value notwithstanding any defect of title in the person
from whom he took it. The great element
of negotiability is the acquisition of property by your own conduct, not by
another’s; that if you take it bona fide and for value, nobody can deprive you
of it’.
Whether dishonor of Post-dated
cheques should be considered as an offense?
Dishonor of post-dated cheques :
Post-dated a cheque is deemed to be drawn on the date it bears. Six months
validity the period runs from the date on the cheque. Reckoning commences only from the date
which
appears on the face of cheque and not the date on which post-dated cheque was
issued.
Post
Dated Cheques (PDCs) as securities:
In order to attract the
penal provisions under ‘Section 138’ of the Negotiable
Instruments Act in case of bouncing of
PDCs, apart from the basic conditions as stated in the section above,
the following conditions need to be present:
(a)
Firstly, the PDC needs to be a cheque at the time of presentation; and
(b)
Secondly, the cheque should be for discharging of a legally enforceable debt (
or ) liability i.e. there should be a legally enforceable debt ( or ) other
liability subsisting on the date of drawl of the cheque.
Held
that question whether cheques were given as security ( or ) not ( or ) whether
there was an outstanding liability ( or ) not being a question of fact was to
be determined by the Trial Court after recording evidence of parties.
When does a Post Dated Cheque (PDC)
become a Cheque?
The
matter as to when PDCs becomes cheque was finally settled by the Hon’ble
Supreme Court in the case of ‘Anil
Kumar Sawhney v. Gulshan Rai’. In the aforesaid case, the Hon’ble
Supreme Court has observed that the post-dated cheque becomes cheque with the effect from the date mentioned/shown on the face of the said cheque and in
between the date of drawl of the cheque and the date mentioned in the cheque,
it is only a bill of exchange. Therefore, in case of dishonor of PDCs, the period
of six months for the purpose of ‘Section
138(a)’ of the Act has to be reckoned from the said date, i.e. the date
mentioned on the face of the cheque and not from the date of drawl of the
cheque.
Dishonor of Post Dated
Cheques were given as security.
The moot issue under consideration is whether the prosecution can be initiated against
the borrower/drawer/debtor in case of dishonor of Post-dated cheques ( or
) blank cheques given as a security under
‘Section 138’ of the
Negotiable Instruments Act, 1881.
In
this context, reference must be made to ‘Balaji
Seafood Exports v. Mac Industries Ltd’.
the Madras High Court held that an undated cheque, issued as security, did
not represent any legally enforceable debt ( or ) liability, that is to say, it
was not issued with the intention to satisfy any subsisting debt. Therefore,
the dishonor of such a cheque did not attract Section 138’ of the Act, 1881. However, regarding the present case the
Supreme Court held that since the post-dated cheques were issued for discharge
of existing liability, therefore, the dishonor of the same would constitute
an offense under ‘Section 138’ of the Act, 1881.
Further
while analyzing the object and amendment and introduction of Chapter
XVII in the Act, the High Court also
observed that :
“provisions
like ‘Section 138’ of the Negotiable Instruments Act, 1881 are salutary
to give reliability, credibility, and acceptability of Negotiable Instruments
like cheques in daily life. However, the object was not to provide effectively
and speedy remedy for the recovery of loans. Lawmakers must not have intended ( or
) imagined that money lender ( 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 the loan under threat of prosecution and
punishment under ‘Section 138’ of the Act. So, it is doubtful if provisions of ‘Section 138’ of the Act, 1881 would be attracted to a case in which a blank
( or ) post-dated cheque is obtained by a bank ( or ) moneylender before ( or
) while sanctioning ( or ) disbursing loan amount as security for the loan
The
High Court also held that :
“In
the present case blank cheques were issued prior to disbursement of loan as a
collateral security for the loan which was sanctioned. In such case there was
no existing debt ( or ) liability when the cheque is issued. So, in the facts
and circumstances of the case, the case does not fall within the four corners
of an offence punishable under ‘Section
138’ of the Negotiable Instruments Act, 1881.
Conclusion:
In
summary, the law governing negotiable instruments is the law of commercial a world which was enacted to facilitate the trade and commerce activities and
making provision of giving sanctity to the instruments of credit which could be
deemed to be convertible into money and easily passable from one person to
another person. It intends to legalize the system under which claims upon the
instruments could be equated with ordinary goods passing from hand-to-hand. The
aim of this Act would be to punish a person who has defaulted in discharging
his debt and lacks the intention to satisfy his debt.
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