Prior to 1988, there was no viable legitimate arrangement to prevent individuals from giving cheque without having sufficient funds in their account or any rigid arrangement to punish them in the event that such a cheque was not honored by their bankers and returned unpaid. Obviously, in case of dishonour of cheques, there is a civil liability.
Many questions arise from this section, for example: who will be liable to the cheque holder, what happens in the event of default, what is the methodology required to present the defense skillfully according to justice and so on. The Negotiable Instruments Act, 1881 was amended in 1988 to add Chapter XVII which concerns penalties for dishonour of certain cheques for lack of funds in the accounts and contains Articles 138 to 147. Safeguard clauses accessible to the defaulters of the cheque are approved by the amendment of the year 2002 in Chapter XVII and the provisions relating to penalties are clarified by various legal proclamations.
The constitutional validity of the dishonour of cheque which were introduced by Amended Law 66 of 1988 was examined by the following case laws: –
- Narayana against Union of India, 1993
- Mayuri Pulse Mills against Union of India, 1995
- Doraisamy vs Archana Enterprises, 1995
- Madras High Court in R. Sankaralingam vs Union of India, 1996
- B. Mohana Krishna against Union of India, 1996
It has been uniformly accepted that Parliament has the power and competency to enact Chapter XVII containing Sections 138 to 142 of the Negotiable Instruments Act 1881 and that they are not unconstitutional.
In case of dishonour of cheque, a criminal complaint must be filed containing the following details: –
- Jurisdiction clause
- Limitation clause
- Full details of the complainant
- Full details of the accused
- Transaction details
- Details of the notice sent to the accused
- Prayers asking for compensation
- Punishment for the accused