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DISHONOR OF CHEQUE ISSUED AS SECURITY FOR DISCHARGE OF A DEBT OR OTHER LIABILITY

Other Topics - By: - Mr. M. GOVINDARAJAN - Dated:- 16-8-2016 - Dishonor Section 91 of the Negotiable Instruments Act, 1881 ( Act for short) provides that a bill of exchange is said to be dishonored by non acceptance when the drawee, or one of several drawees not being partners, makes default in acceptance upon being duly required to accept the bill, or where presentment is excused and the bill is not accepted. Where the drawee is incompetent to contract, or the acceptance is qualified, the bill .....

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e that the instrument has been so dishonored to all other parties, whom the holder seeks to make severally liable thereon, and to some one of several parties whom he seeks to make jointly liable thereon. Nothing in this section renders it necessary to give notice to the maker of the dishonored promissory note, or the drawee or acceptor of the dishonored bill of exchange. Penalty Section 138 of the Act provides that where any cheque drawn by a person on an account maintained by him with a banker .....

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rovision of this Act, be punished with imprisonment for a term which may be extended to two years or with fine which extend to twice the amount of the cheque, or with both. The proviso to this section provides that nothing contained in this section shall apply unless- The cheque has been presented to the bank within a period three months from the date on which it is drawn or within the period of its validity, whichever is earlier; The payee or the holder in due course of the cheque, as the case .....

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r other liability means a legally enforceable debt or other liability. Issue The issue to be discussed in this article is whether the cheques issued as security for discharge of a debt or other liability and its dishonor attracts the provisions of Section 138 of the Act, with reference to decided as case law as discussed below: In Don Ayenga V. State of Assam and another - 2016 (1) TMI 951 - SUPREME COURT the appellant complaint is a partner in M/s Ayyan Consortium. He entered into an agreement .....

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ory note stipulated that ₹ 10 lakhs was being refunded by the executants in terms of five post dated cheques, the receipt whereof was acknowledged by the complainant. The promissory note further mentioned that the cheques were being issued as a security and shall be returned to Nazimul when the amount of ₹ 10 lakhs is paid by him within a period of one month. Interest was also promised to be paid on the said amount. The appellant presented the cheques after the expiry of the period o .....

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was reflected in the form of an endorsement on the promissory note in which he agreed to the cheques being presented for payment after 25.09.2007. The appellant once again presented the cheques for payment on 05.11.2007 but the same were dishonored by the bank for the third time. A statutory notice was issued by the appellant to the respondent. The respondent sent a reply to the appellant undertaking to pay the whole amount by the second week of January 2008 by issuing fresh cheques. A complaint .....

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the respondent modified the sentence awarded to him to payment of a fine of ₹ 2,000/- and a default sentence of imprisonment for a period of one month, in addition to the amount of compensation awarded by the trial court. The sentence of imprisonment was set aside by this court. Both parties filed appeal before the High Court. The High Court set aside the conviction of the respondent against which the appellant present this appeal before the Supreme Court. The Supreme Court found that it .....

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