Introduction

• The cheque – issued for the discharge of a debt or any other kind of legal liability in whole or part;
• The cheque – dishonoured for the reasons of “insufficiency of funds” or “exceeded the arrangement”;
• The cheque – must be presented within a period of three months from the date the cheque becomes payable in case of post-dated cheque or within 30 days from the date of its issuance.
• The payee or holder to issue a notice in writing to the drawer within a period of 30 days of the receipt of the return memo from the bank;
• Such notice should specifically make the allegations of dishonouring of cheque for the reason of insufficiency of funds and the notice should also specify that the notice so issued is by virtue of Section 138 of the Negotiable Instruments Act, 1881;
• The notice should contain the date, the number of the cheque, the name of the banker upon whom the cheque is drawn, the amount for which the cheque is drawn and the date of issue of the cheque in case of post-dated cheque and anti-dated cheque
• The notice should also mention the consequences the accused may be held liable to face and the notice should specifically mention the amount so demanded in the cheque;
• After receiving such a notice from the holder of the prescribed course of time, the drawer has failed to pay the cheque within a period of 15 days of receiving the said notice.

Will a Mismatch of Signature of the drawer of the cheque be a good ground for initiating proceedings under section 138 of the Act for dishonour of Cheque?

The Key Concern before the Court was whether dishonour of a cheque would constitute an offence only in one of the two conditions mentioned under Section 138 of the Act and not in case where signatures on the cheque mismatch the specimen signatures available with the bank.

Judgment of the Court:

The Supreme Court relying on its own judgment in NEPC Micon Ltd. v. Magma Leasing Ltd. (AIR 1999 SC 1952) held that “the expression “amount of money…….is insufficient” as appearing in Section 138 of the Act is a “genus” and dishonour of cheque on grounds such as “account closed”, “payment stopped”, “referred to the drawer” inevitably result into dishonour of cheques issued by the drawer and thus such grouds are different “species” of that genus.” The Supreme Court gave similar interpretation to dishonour of cheques due to mismatch of signature or due to “image is not found” and held that these grounds are also different specie of the aforementioned genus.

The Supreme Court further held that “there may be a situation where the drawer of the cheque changed his signature with a fraudulent intention that such change in signature would result in dishonour of cheque. In such situation mismatch of signature of drawer on cheque with the specimen signatures would constitute dishonour within the meaning of Section 138 of the Act subject to the condition that the drawer fails to make payment within the stipulated time despite receiving statutory notice under Section 138 of Act.”