Mains Questions and answer of Negotiable Instrument Act

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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:

  1. Cheque drawn by the accused on an account maintained by him

  2. Cheque issued for discharge of legally enforceable debt or liability

  3. Presentation within validity period

  4. Dishonour of cheque due to insufficiency of funds or exceeding arrangement

  5. Statutory notice issued within 30 days of dishonour

  6. Failure to pay within 15 days of receipt of notice

Case-law:

  • Kusum Ingots v. Pennar Peterson (2000) – All six ingredients mandatory

  • 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:

  • Section 118(a) – Presumption of consideration

  • Section 139 – Presumption that cheque was issued for discharge of debt

These are mandatory but rebuttable presumptions.

Standard of rebuttal:

  • Accused need not prove beyond reasonable doubt

  • Preponderance of probability is sufficient

Modes of rebuttal:

✔️ Cross-examination of complainant
✔️ Probable defence
✔️ Circumstantial evidence

Case-law:

  • Rangappa v. Mohan (2010) – Presumption includes existence of debt

  • 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:

  • If notice is sent to correct address → presumption of service

  • Refusal / unclaimed = deemed service

Case-law:

  • 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:

  • Sampelly Satyanarayana Rao v. IREDA (2016) – Security cheque covered

  • 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:

  1. Accused must be company

  2. Person must be in charge of and responsible for conduct of business

  3. Specific averment in complaint mandatory

Who is liable automatically?

✔️ Managing Director
✔️ Joint Managing Director

Case-law:

  • SMS Pharmaceuticals v. Neeta Bhalla (2005) – Basic averment compulsory

  • 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:

  • Proceedings abate on death of accused

  • Legal heirs cannot be substituted

Case-law:

  • 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:

  • Can be compounded at any stage

  • Courts may impose graded costs

Case-law:

  • 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:

  • Modi Cements v. Kuchil Kumar Nandi (1998)

  • 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):

  • Jurisdiction lies where:
    ✔️ Bank of payee is situated (where cheque is deposited)

Case-law:

  • 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)

  • Always mention Sections 118 + 139 together

  • Quote Rangappa + Basalingappa

  • Use Aneeta Hada in company cases

  • Mention Alavi Haji for notice questions

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