Prosecution in cheque bouncing made easier

Can a holder of a cheque that has been dishonoured for a second or third time initiate proceedings for prosecution under section 138 of Negotiable Instruments Act, 1881, if no action was initiated when the cheque was first dishonoured?

Allowing an appeal in MSR Leathers v S Palaniappan & Anr, a three-judge bench of the Supreme Court recently ruled that “prosecution based upon second or successive dishonour of the cheque is also permissible so long as the same satisfies the requirements stipulated in the proviso to section 138 of the Negotiable Instruments Act”.

In making this ruling India’s apex court has overturned an earlier ruling in Sadanandan Bhadran v Madhavan Sunil Kumar, where it had held that, on a combined reading of section 138 and 142 of the act the cause of action under section 142(b) arose only once. As such, if a cheque is dishonoured a second or third time, the right to prosecute the drawer is forfeited if the first dishonour had not resulted in immediate prosecution of the offender.

The update of court judgments is compiled by Bhasin & Co, Advocates, a corporate law firm based in New Delhi. The authors can be contacted at lbhasin@bhasinco.in or lbhasin@gmail.com. Readers should not act on the basis of this information without seeking professional legal advice.