Dishonouring Of A Bank Cheque

DISHONOURING OF A BANK CHEQUE DISHONOURING OF A BANK CHEQUE By Qaiser Javed Mian, Attorney-at-law The laws pertaining to trade/commerce/business have always been given importance because they create an environment for solid economic base of society. The Indian monarchies did not given space to such laws and the business was dominated by the empirical principles or notions. However, one can miserly give some credit to the East India Company who introduced some business rules and theories as compared to depending on mere sense-data or experience as valid information. The British developed court system so that, inter alia, business matters are run smoothly. Section 5 of the Negotiable Instruments Act (XXVI of 1881) defines a "Bill of Exchange" as follows:- "A bill of exchange" is an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay [on demand or at a fixed or determinable future time] a certain sum of money only to, or to the order of a certain person or to the bearer of the instrument." Section 6 of the Negotiable Instruments Act Defines: "Cheque." A "cheque" is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand." It is clear that a cheque falls within the definition of a Bill of Exchange and is, thus, a negotiable instrument. A cheque may be transferred or negotiated by endorsement2 and delivery to a third person. But, unlike other negotiable instruments, there are specific provisions like sections 123,124,129 and 130 of the Negotiable Instruments Act with regard to crossed cheques. A cheque being a negotiable instrument may be payable to order or bearer and can be crossed as "payee's account" but without the endorsement as "not negotiable" is a negotiable instrument. A cheque's negotiability cannot be destroyed unless it is marked as "not negotiable" on its face. Promisory Notes and Cheques are negotiable instruments which could not be attested by witness and in case any signature by stranger were appended thereupon, the signing was to be presumed to have been made as endorser.3A Demand Draft issued by a bank on its branch or vice versa is not a cheque. But there is hardly any difference between a dishonoured draft and a dishonoured cheque issued by a bank on itself. It is very nearly allied to a cheque and the difference between it and a cheque consists largely in two facts; firstly, that it can be drawn only by a bank on another bank and not by a private individual as in the case of cheques and secondly, that it cannot be so easily countermanded as a cheque either by the person purchasing it or by the bank to which it is presented. There is a presumption of correctness and truth as were as sanctity is attached to a Negotiable Instrument including a "Cheque". Special rules of evidence are applicable to such documents. In this regard section 118 of the Negotiable Instruments Act may be perused which is reproduced below:-- "Presumptions as to negotiable instruments. Until the contrary is proved, the following presumptions shall be made:-- (a) of consideration; that every negotiable instrument was made or drawn for consideration, and that every such instrument, when it has been accepted, indorsed, negotiated or transferred, was accepted, indorsed, negotiated or transferred, for consideration ; (b) as to date; that every negotiable instrument bearing a date was made or drawn on such date; (c) as to time of acceptance; that every accepted bill of exchange was accepted within a reasonable time after its date and before its maturity; (d) as to time of transfer; that every transfer of a negotiable instrument was made before its maturity; (e) as to order of endorsement; that the endorsements appearing upon a negotiable instrument were made in the order in which they appear thereon; (f) as to stamp; that a lost promissory note, bill of exchange or cheque was duly stamped; (g) that holder is a holder in due course; that the holder of a negotiable instrument is a holder in due course; provided that, where instrument has been obtained from its lawful owner, or from any person in lawful custody thereof, by means of an offence or fraud, or has been obtained from the maker or acceptor thereof by means of an offence or fraud, or for unlawful consideration, the burden of proving that the holder is a holder in due course lies upon him." Order-XXXVII Civil Procedure Code Any disputes relating to a cheque, including the dishonouring of a cheque are to be resolved under the provisions of Order XXXVII of the Civil Procedure Code. Order XXXVII of. C.P.0 provides for a summary procedure putting the burden of proof on the defendant as opposed to the general doctrine in the civil law, that the plaintiff has to prove its own case. The importance of Negotiable Instruments in the eye of law can be judged from the fact that any case/suit based on a negotiable instrument can be directly filed before the District Judge instead of,. in the court of a Civil Judge which is the court of first instance, while the court of District Judge is a higher court with the powers of hearing appeals from the Court of a Civil Judge. The notice which the court of District Judge issues to the defendant is not like a general notice in civil cases asking the defendant to come to the court to defend the case. Rather, it is in the form of a show-cause notice, stating to defendant as to why decree should not be passed against him. The defendant is given a ten days' show-cause notice to file a petition for leave to appeal and defend the suit as the presumption of correctness and truth is in favour of the plaintiff who is holding a Negotiable Instrument on the basis of which he has filed suit. Petition for leave to appear and defend must raise substantial questions of law and/or fact giving sufficient reason to the court for granting leave to appeal and defend the suit. Banking Law As the world of business developed, need was felt to introduce new laws in the field of Banking in general and with regard to the treatment of a "bank cheque" in particular, keeping in view the frequency of events of dishonouring of bank cheques. The treatment of dishonouring of a cheque under subsection (4) of section 19 of "The Banking, Companies (Recovery of Loans, Advances, Credits and Finances) Act, 1997" is as follows:-- Whoever dishonestly issues a cheque which is dishonoured shall be punishable with imprisonment which may extend to one year or with fine, or with both, unless he can establish, for which the burden of proof shall rest on him, that he had made arrangements with his bank to ensure that the cheque would be honoured and that the bank was at fault in not honouring the cheque. This law i.e. the above stated Act of 1997 entails both civil as well as criminal remedies before the Banking. Court under section 7 read with section 9 of the Act which state that a Banking Court has the powers of a civil court in civil matters and also the powers of a Sessions Court in criminal matters. The bank cheque envisaged in section 19(4) of the 1997 Act and section 20(4) of the Banking Ordinance, 2001 encompasses a cheque given by a borrower/customer to a financial institution in whole or in partial fulfillment of its obligations, may it be a repayment of loan/finance, lease money, rental, principal and/or mark-up, fines, penalties, cost of funds, legal costs etc. accruing from the transaction between borrower and financial institution. Any penal punishment for dishonouring of a cheque would not exonerate the borrower from his/its civil liability of paying the due sum. In the event of dishonouring of a cheque as envisaged above, financial institution may file a criminal complaint before Banking Court under its criminal jurisdiction as a Sessions Judge or may also simultaneously pursue its civil remedy of the recovery of the amount of the bounced cheque before the same court. In this case, no F.I.R can be got registered by the financial institution against the "borrower/ customer" which includes the guarantors, mortgagors, indemnifiers etc. who are deemed as the principal debtors. The treatment of dishonouring of a cheque under subsection (4) of section 20 of "Financial Institutions (Recovery of Finances) Ordinance, 2001" is as follows:- "Whoever dishonestly issues a cheque towards re payment of a finance or fulfillment of an obligation which is dishonoured on presentation, shall be punishable with imprisonment which may extend to one year, or with fine or with both, unless he can establish, for which the burden of proof shall rest on him, that he had made arrangements with his bank to ensure that the cheque would be honoured and that the bank was at fault in not honouring the cheque." This law i.e. The Financial Institutions Ordinance of 2001 entails both civil as well as criminal remedies as already stated above in the context of the Banking Companies Act of 1997, before the Banking Court under section 7 read with section 9 of the Ordinance which state that a Banking Court has the powers of a civil court in civil matters and also the powers of a Sessions Court in criminal matters. These sections of the Ordinance of 2001 read as follows:- Section 7 "Powers of Banking Courts.--(1) Subject to the provisions of this Ordinance, a Banking Court shall- (a) in the exercise of its civil jurisdiction have all the powers vested in a Civil Court under the Code of Civil Procedure, 1908 (Act V of 1908); (b) in the exercise of its criminal jurisdiction, try offences punishable under this Ordinance and shall, for this purpose have the same powers as are vested in a Court of Session under the Code of Criminal Procedure, 1898 (Act V of 1898)..." Section 9 "Procedure of Banking Courts.--(1) Where a customer or a financial institution commits a default in fulfillment of any obligation with regard to any finance, the financial institution or as the case may be the customer, may institute a suit in the Banking Court by presenting a plaint which shall be verified on oath, in the case of a financial institution by the Branch Manager or such other officer of the financial institution as may be duly authorized in this behalf by power-of-attorney or otherwise..." (Emphasis added). Pakistan Penal Code Thereafter an amendment was introduced in section 489 of Pakistan Penal Code by Ordinance LXXXV of 2002, by adding section F which reads as follows:- [489-F. Dishonestly issuing a cheque.--Whoever dishonestly issues a cheque towards re-payment of a loan or fulfillment of an obligation which is dishonoured on presentation, shall be punishable with imprisonment which may extend to three years, or with fine, or with both, unless can establish, for which the burden of proof shall rest on him, that he had made arrangements with his bank to ensure that the cheque would be honoured and that the bank was at fault in not honouring the cheque.] Registration of F.I.R under section 489-F, P.P.C. It is submitted, that registration of F.I.R under section 489-F P.P.C. is not an automatic result of dishonouring of a cheque. Other factors have also to be taken into account such as the genuineness of the signatures on the cheque, and, in a commercial/trading/business matter, if there was any stop payment instruction from the drawer of a cheque to bank.4 The purpose and object of section 489-F P.P.C., is to curb the fraudulent and dishonest issuance of cheques to cause dishonest gain or to cause "dishonest loss", or to "defraud" anybody. The word "dishonest" requires conscious examination. The term "dishonestly" is defined in section 24 of the P.P.C.5 The factum of dishonouring of a cheque on its own feet without substantiation of "fraud" is not enough for registration of First Information Report (F.I.R.). "Mere issuance of .a cheque which is subsequently dishonoured does not constitute an offence under section489-F, P.P.C. unless same is issued dishonestly and for the repayment of a loan or for discharging any obligation".6 "Whether cheque in dispute had been issued as a guarantor or towards repayment of a loan or fulfillment of an obligation required recording of evidence and it was the function of the court to decide whether there was some element of dishonesty on the part of the cheque". (Emphasis added).' The rationale of application and scope of section 489-F, p.P.C. does not call for a mechanical action immediately when cheque is returned by a banker, but is to be used only where, prima fade, the purpose of issuing the cheque was dishonesty pure and simple in the matter of payment of loan. Business transactions, genuine disputes and contractual obligations may not constitute an intention for the offence."8 (emphasis added). In the case of a writ petition filed for quashment of F.I.R registered under section 489-F, P.P.C. a "Notice was placed petitioner to respondent [and] had explained circumstances in which cheque in dispute was issued. Even according to investigation carried out by police, petitioner/accused had been found prima facie innocent. Lodging of F.I.R was the result of ulterior motive which had been negative even during police investigation. Constitutional petition for quashing of F.I.R was allowed and F.I.R registered under section 489-F, P.P.C. was directed to be quashed."9 It has also been held that, basically, section 489-F, P.P.C. gets attracted only in two situations or in other words has got two pre-requisites:-- (i) cheque has to be for repayment of loan; (ii) it must be in fulfillment of an obligation; "Section 489-F, P.P.C. would only be relevant where in respect of a loan or non-fulfillment of an obligation, a cheque was issued and it got dishonoured in the way mentioned under said section, section 489-F, P.P.C. would not be attracted for any other purpose. Corollary of that would be that cheques which were issued otherwise than for purpose of re-payment of loans or fulfillment of obligation, would not be covered by definition of section 489-F, P. R C. Applications asking for cancellation of bail were dismissed because none of those pertained to the purpose as defined."1 Criminal and Civil Liability is Parallel and Simultaneous. It is submitted that criminal and civil liability ensuing from dishonouring of a cheque are separate, do not overlap rather go parallel simultaneously. A Civil Court cannot stop criminal investigation by issuing injunctive order. "Alleged dishonouring of the relevant cheque had come about prior to issuance of any injunctive order by a Civil Court and, thus, the offence, if any, had already been committed before passing of injunctive order by the Civil Court. Lying of information before the police regarding commission of a cognizable offence could not be stopped by a Civil Court. No injunctive order could be passed against the law. No injunction could be granted by a Civil Court against criminal investigation or in criminal matter"11 "Criminal case must lie allowed to proceed on its own merits and merely because civil proceedings relating to same transaction had been instituted, it had never been considered to be a legal bar to the maintainability of criminal proceedings which could proceed concurrently because conviction for a criminal offence was altogether a different matter from the civil liability."12 (emphasis added) It has been held that, "criminal proceedings could not be held in abeyance in all circumstances during pendency of a civil suit. Criminal proceedings were not barred in the presence of civil proceedings and both proceedings could be carried out simultaneously. Civil Court had no jurisdiction to prevent presentation of a cheque for encashment, which was a negotiable instrument. Civil Court by its injunctive order had (only) directed the defendant accused not to receive money through illegal means and force. Presentation of valid cheque for encashment by no stretch of the argument could be termed as an attempt to receive money by illegal means or by force."13 Civil remedy under Order XXXVII, Rules, 1 and 2 and criminal remedy under section 489-F, P.P.C. "both these remedies being not overlapping could be simultaneously availed of by the person who had been conferred such remedies by law... Subsection (3) of section 522-A, Cr.P.0 provided that a civil suit was not barred even in the presence of said section. Exercise of right of filing of suit could not create any hindrance in the way of lodging F.I.R under section 489-F, P.P.C. and vice versa... If different rights to commence proceedings of civil or criminal nature had sprung up with different results, those could be availed of differently and maxim that "a man should not be vexed twice, would not be applicable in such a case." 1. This lecture was delivered, in the training course of Second Batch of Additional District and Sessions Judges on 20th Nov, 2009 and 25th Nov, 2009 at Punjab. Judicial Academy, Lahore. 2. Also spelled as "endorsement". 3. See Abdul Rauf v. Farooq Ahmad PLD 2007 Lah p.114 = 2007 CLD p. 114. 4. See Syed Hasan Raza v. Deedar Hussain Shah, PLD 2008 Karachi p.305. The Honourable Supreme Court of Pakistan has also held that the facts are to be probed into before registering F.I.R. under section 489-F P.P.C., and F.I.R. not to be registered automatically. See also Shah Jehan Khetran v. Sh. Mureed Hussain, 2005 SCMR 306. 5. See e.g. Maj. (Rtd.) Javed Inayat Khan Kiyani v. The State PLD 2006 Lahore p.752. 6. See e.g. Iftikhar Akbar v. The State, 2008 MLD p.159. 7. See Tahir Rashid v. The State and 4 others, 2007 YLR 518 (Lahore). 8. See, Major Anwar-ul-Haq v. The State, PLD 2005 Lahore p. 607. 9. See. Sheikh Mureed Hussain v. S.H.O. etc., 2005 P.C.r.L.J 144 (Lahore). 10. See, Muhammad Ayub v. Rana Abdul Rehman, 2006 YLR 1852 (Lahore), Referred 2005 P.Cr.L J 1462 and 2006 P.Cr.L.J 157. 11. See Aamir Shehzad v. The State, "PLD 2005 Lahore p. 568. 12. See Seema Fareed v. The State, "2008 SCMR 839" (Supreme Court). 13. See Rehan Nasiq v. Station House Officer, "2008 YLR 2505 (Lahore). 14. See Muhammad Asif v. Muhammad Javed Akhtar, "2006 MLD 1184 (Lahore).