NEGOTIABLE INSTRUMENTS ACT – TOP MAINS QUESTIONS & ANSWERS
Q1. What are the essential ingredients of an offence under Section 138 of the Negotiable Instruments Act? Discuss with case-law.
Answer:
Section 138 creates a statutory offence for dishonour of cheque for insufficiency of funds.
Essential Ingredients:
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Cheque drawn by the accused on an account maintained by him
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Cheque issued for discharge of legally enforceable debt or liability
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Presentation within validity period
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Dishonour of cheque due to insufficiency of funds or exceeding arrangement
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Statutory notice issued within 30 days of dishonour
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Failure to pay within 15 days of receipt of notice
Case-law:
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Kusum Ingots v. Pennar Peterson (2000) – All six ingredients mandatory
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Bir Singh v. Mukesh Kumar (2019) – Presumption applies even to blank cheque
Q2. Explain the presumption under Sections 118 and 139 of the NI Act. How can it be rebutted?
Answer:
Presumptions:
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Section 118(a) – Presumption of consideration
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Section 139 – Presumption that cheque was issued for discharge of debt
These are mandatory but rebuttable presumptions.
Standard of rebuttal:
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Accused need not prove beyond reasonable doubt
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Preponderance of probability is sufficient
Modes of rebuttal:
✔️ Cross-examination of complainant
✔️ Probable defence
✔️ Circumstantial evidence
Case-law:
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Rangappa v. Mohan (2010) – Presumption includes existence of debt
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Basalingappa v. Mudibasappa (2019) – Accused can rely on complainant’s evidence
Q3. Is service of notice under Section 138 mandatory? What if notice is refused or unclaimed?
Answer:
Yes, service of notice is mandatory, but actual receipt is not always necessary.
Legal Position:
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If notice is sent to correct address → presumption of service
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Refusal / unclaimed = deemed service
Case-law:
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C.C. Alavi Haji v. Palapetty Muhammed (2007)
Drawer cannot avoid liability by deliberately avoiding notice.
Q4. Whether a cheque issued as security attracts Section 138? Discuss.
Answer:
A cheque issued as security can attract Section 138 if, on the date of presentation, a legally enforceable debt exists.
Case-law:
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Sampelly Satyanarayana Rao v. IREDA (2016) – Security cheque covered
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Sripati Singh v. State of Jharkhand (2021) – Purpose of cheque immaterial
Q5. Discuss vicarious liability of directors under Section 141 of the NI Act.
Answer:
Essential Conditions:
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Accused must be company
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Person must be in charge of and responsible for conduct of business
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Specific averment in complaint mandatory
Who is liable automatically?
✔️ Managing Director
✔️ Joint Managing Director
Case-law:
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SMS Pharmaceuticals v. Neeta Bhalla (2005) – Basic averment compulsory
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Aneeta Hada v. Godfather Travels (2012) – Company must be arrayed as accused
Q6. Can proceedings under Section 138 continue after death of the accused?
Answer:
No. Criminal liability under Section 138 is personal.
Position of Law:
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Proceedings abate on death of accused
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Legal heirs cannot be substituted
Case-law:
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Himachal Pradesh Housing Board v. Varinder Kumar Garg (2005)
Q7. Explain compounding of offence under Section 147 of the NI Act.
Answer:
Section 147 makes offences under NI Act compoundable notwithstanding CrPC.
Guidelines:
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Can be compounded at any stage
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Courts may impose graded costs
Case-law:
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Damodar S. Prabhu v. Sayed Babalal H. (2010) – Compounding guidelines
Q8. Whether dishonour of cheque for “stop payment” attracts Section 138?
Answer:
Yes, if debt exists.
Case-law:
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Modi Cements v. Kuchil Kumar Nandi (1998)
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Laxmi Dyechem v. State of Gujarat (2012) – Even “account closed” covered
Q9. What is the territorial jurisdiction for filing a complaint under Section 138?
Answer:
As per Section 142(2):
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Jurisdiction lies where:
✔️ Bank of payee is situated (where cheque is deposited)
Case-law:
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Dashrath Rupsingh Rathod (2014) – Later neutralized by amendment
Q10. Distinguish civil liability from criminal liability under the NI Act.
Answer:
| Civil Liability | Criminal Liability |
|---|---|
| Recovery of money | Punishment |
| CPC applies | CrPC applies |
| Preponderance | Beyond reasonable doubt |
NI Act creates additional criminal remedy.
📌 Case-law: P. Mohanraj v. Shah Brothers (2021)
🔖 EXAM TIP (Judiciary Mains)
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Always mention Sections 118 + 139 together
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Quote Rangappa + Basalingappa
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Use Aneeta Hada in company cases
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Mention Alavi Haji for notice questions