Drawer/Issuer of Cheque

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Drawer / Issuer of Cheque

Introduction

The drawer (or issuer) of a cheque is the person who signs and issues a cheque instructing his banker to pay a certain sum to the payee. While this appears a routine commercial act, issuing a cheque in India engages both civil and criminal law. The legal identity and conduct of the drawer determine civil remedies for recovery and criminal liability under the Negotiable Instruments Act, 1881. For practitioners, mastery of the law relating to the drawer is indispensable: it dictates the evidence to be led, the defences available, procedures to be followed and strategic choices — whether to pursue recovery by civil suit, criminal complaint under Section 138, negotiation or settlement.

Core Legal Framework

Primary statute
– Negotiable Instruments Act, 1881 — provisions most frequently invoked in relation to a drawer/issuer of a cheque:
– Section 138 — Dishonour of cheque for insufficiency of funds, its essential ingredients and punishment.
– Section 139 — Presumption as to negotiable instrument (shifts initial burden to the drawer in cheque-dishonour cases).
– Section 141 — Offence by company (and analogous rules for other non-individual drawers).
– Sections 138–142 read together — these are the core criminal provisions practitioners use when a cheque issued by a drawer bounces.
– Code of Criminal Procedure, 1973 — procedure for filing complaints (Section 200 onward), framing of charges, trial process; interplay where criminal complaint under Section 138 is filed.
– Indian Evidence Act, 1872 — evidentiary rules (documentary proof, presumptions, secondary evidence, etc.) used both for establishing the factum of the cheque and for rebutting statutory presumptions.

Key statutory contours (practical paraphrase)
– Section 138 establishes a criminal offence when: (a) a cheque is drawn by a person for discharge of any debt/liability; (b) it is presented and returned dishonoured for insufficiency of funds or because it exceeds arrangement; (c) the payee/holder gives demand notice within the statutory/expected timeframe; and (d) drawer fails to make payment within the prescribed period after notice. Conviction attracts imprisonment and/or fine.
– Section 139 creates a statutory presumption that, where a cheque drawn by a person is returned unpaid, it was issued for consideration of debt or liability and the drawer is prima facie liable — the presumption is rebuttable but shifts initial burden to the drawer.

Practical Application and Nuances

How the concept of “drawer” plays out in day-to-day practice

  1. Who is the drawer?
  2. The drawer is the person who signs the cheque instructing his bank to pay. The drawer may be an individual, a firm partner, a director acting on behalf of a company, a trustee, or any authorised signatory. Identification of the drawer is often the first issue — make sure the name on the cheque corresponds with the signature and account-holder particulars.

  3. When a cheque is issued by an entity (company/firm), enquiry must be made whether the signatory had authority to draw the cheque (Board resolution, power of attorney, partnership deed, corporate authorisation). If authority is absent, the drawer may be a rogue signatory and the company/partner may rely on internal governance to disown liability.

  4. Ingredients to prove when acting for the payee/complainant

  5. Original cheque (signed) in court (or acceptable secondary evidence with justification if original lost).
  6. Bank-return memo (stamped and signed) showing dishonour and reason (insufficiency of funds, amount exceeding arrangement, stop payment).
  7. Evidence of presentation of cheque to bank and date of presentation.
  8. Proof of demand notice sent to the drawer and proof of service (registered post with AD, speed post receipts, courier POD, or electronic notice together with acknowledgement where courts accept).
  9. Proof of drawer’s failure to make payment within the notice period.
  10. Contemporaneous bank account statements to show absence of funds if necessary (helpful to show genuineness).

  11. Section 139 presumption assists: once the cheque, bank memo and notice are produced, the court will presume the cheque was issued towards discharge of debt — the drawer must rebut.

  12. Practical defensive lines (common defences by drawers)

  13. The cheque was not issued towards discharge of any debt or liability (e.g., cheque given as security, token or for an uncompleted transaction).
  14. The cheque was forged or signature is not of the drawer.
  15. Consideration was illegal or transaction void — e.g., the underlying contract is void ab initio.
  16. Cheque was post-dated and presented prematurely; cheque was stale when presented (banking practice often treats cheques older than three months as stale) — however, stale-cheque defence must be built carefully.
  17. Stop-payment instructions were given to bank before presentation (must be proved).
  18. Technical defects in the statutory demand notice (no proof of service, wrong addressee, incomplete/cursory demand) — courts scrutinise service.

  19. Dishonour not for insufficiency but other reasons (e.g., signature mismatch) — examine bank memo wording.

  20. Evidence required to rebut Section 139 presumption

  21. The presumption is rebuttable but rebuttal requires cogent evidence. Drawer must produce contemporaneous documents, bank communications, proof of payment or settlement, alternative transaction records (agreements showing cheque as security), or expert handwriting evidence in case of forgery.

  22. Mere assertion is insufficient; relevant documentary corroboration and credible oral testimony are necessary.

  23. Tactical choices between civil recovery and criminal complaint

  24. A cheque can give rise to both civil liability (suit for recovery) and criminal liability (Section 138). Filing a criminal complaint invokes statutory timelines and specific proof standards (and the presumption under Section 139), while a civil suit may provide interim relief (injunction, attachment) and wider discovery. Often practitioners pursue both avenues simultaneously, but strategic sequencing — notice, negotiation, and then complaint if negotiations fail — is common.

  25. Procedural nuances

  26. Proof of proper delivery of legal notice is frequently decisive. Use registered post with A.D. (acknowledgment due) or speed-post with POD, or courier with POD. Courts accept affidavits of process servers and tracking receipts if properly filed.
  27. Preserve chain of custody of the original cheque, return memo, and bank statements. Courts often refuse secondary copies unless explained.
  28. If drawer is a company, identify the officer responsible; under Section 141, company officers can be personally liable if offence committed with consent or connivance.

Concrete examples
– Example A (payee’s strategy): A supplier presents an original cheque issued by purchaser; cheque bounces for insufficiency. Supplier produces cheque, bank return memo and proof of registered demand notice. Under Section 139, presumption arises; unless purchaser produces strong documentary proof that cheque was given as security or was already paid, conviction is probable.
– Example B (drawer’s strategy): Drawer contends cheque was a blank signed cheque later completed by payee fraudulently. Drawer obtains handwriting expert report, proves absence of authorization, produces bank records showing stop payment instruction before presentation — this can rebut Section 139 presumption if credible.

Landmark Judgments

S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla, (2005) 8 SCC 89
– The Supreme Court emphasised that Section 138 is a criminal provision and the presumption in Section 139 shifts initial burden to the accused to explain the circumstances. The Court observed that once the primary facts are proved (cheque, dishonour memo, notice, failure to pay), the accused must give a plausible explanation; mere denial is not sufficient. The judgment also stressed the need for judicial caution before convicting, since mens rea is a component, but that the statutory presumption is powerful and operative. Practically, S.M.S. makes it clear judges will look for cogent evidence from the drawer to rebut the presumption and that procedural safeguards (notice, presentation, return memo) are critical for the complainant.

(Practitioners should read the full judgment for guidance on the standard of proof and the balancing act courts perform between civil remedy and criminal offence.)

Strategic Considerations for Practitioners

For complainants (payee/holder)
– Document everything at the outset: keep originals of cheque, delivery receipts, bank return memo, bank statements, ledger entries and copies of correspondence.
– Serve a precise statutory demand notice within the tight time window: attach photocopy of the cheque; state amount demanded and timeline for payment (15 days from receipt) and mode of delivery; proof of service is critical.
– Ensure timely presentation of the cheque to bank to avoid stale-cheque issues; examine the bank’s return memo carefully — the exact reason recorded can influence strategy.
– Consider simultaneous civil remedies for interim relief (attachment, injunction) if recovery is urgent; in many cases criminal complaint is used to coerce settlement.
– Prepare to meet defences based on “security cheque” or “forgery” by compiling contemporaneous agreements, communications and bank records.

For accused (drawer)
– Immediately preserve and collate contemporaneous documents: agreements, email/SMS communications, bank instructions, proof of payment (if any), stop-payment instruction receipts, proof that cheque was given as security or in negotiation (if applicable).
– Early forensic steps: secure expert handwriting opinion (where forgery alleged), bank statements, and evidence of any pre-existing arrangement with payee.
– Rebut Section 139 with precise, contemporaneous documentary evidence rather than after-the-fact denials.
– If the cheque was issued by a signatory on behalf of an organisation, scrutinise corporate authorisation; if liability is personal, seek to show absence of authority.
– Explore alternatives: settlement before summonses are issued is often pragmatic — courts accept settlement and sometimes allow compounding subject to statutory norms.

Common pitfalls to avoid
– For complainants: relying on photocopies alone; laxity in proof of service of notice; delay in presenting cheque to bank; failing to produce original cheque or bank return memo.
– For drawers: assuming that denial of liability will suffice to rebut Section 139; not preserving evidence contemporaneous with the transaction; ignoring the statutory notice and procedural requirements till after complaint is filed.
– For both sides: underestimating how courts evaluate credibility — contemporaneous documentary trail often outweighs later oral recollections.

Checklist for filing/defending a Section 138 complaint (practical)
– Complainant’s folder: original cheque, bank return memo (original), copy of cheque, proof of presentation, postal receipts and AD cards/courier POD of demand notice, reply (if any) from drawer, ledger/contract showing underlying debt, bank statement showing non-payment.
– Drawer’s folder: original or certified copies of agreements, proof of payment or settlement, proof of stop-payment or closed account, correspondence proving cheque was for security or for a different purpose, evidence of forgery if alleged.

Conclusion

The legal identity and conduct of the drawer shape both civil recovery and criminal exposure. Section 138 coupled with the presumption under Section 139 makes the drawer’s position potentially precarious once a cheque bounces — but the presumption is rebuttable with cogent, contemporaneous evidence. Practically, success for either party depends less on legal theory and more on meticulous preservation of documents, strict compliance with statutory procedural steps (presentation and notice), and strategic use of civil and criminal remedies. For the practitioner, the mantra is documentary control: original cheque, bank return memo, prompt statutory notice and a coherent record of the underlying transaction will win—or, when defending, will be indispensable to rebut the statutory presumption.