“Valid contract” is not a prerequisite for Cheque Dishonour case
“You need a valid contract to file a cheque dishonour case” recently similar text has flooded the screen of legal professionals, to some it’s a new development and to others, it is not a matter of their concern, but I doubted the news, if such news is true that would fundamentally change the nature of negotiable instrument and render the Negotiable Instrument Act, 1881 quite useless.
Before I begin my critical analysis I should caution you to use your discretion, because as a legal professional law is not black or white to me rather it’s a grey area where lawyers put light or provide shadow to make it look bright or dark.
Some jurists rightly said, what is written is not law, law is what you interpreted before the court. [and court accepts]
If you are a layman, came here just to get a simple answer because you are in trouble with a cheque the answer is pretty simple for you, and the answer is “No”, you don’t need a separate contract to file a cheque dishonour case. But if you are a professional like me you need to dig deeper and in the end, you will find your answer. It belongs to the grey area, for now, it can be said, yes a contract or at least some element of a contract is necessary. The main question is who needs to prove that contract and when?
This article will address the question of contract in the matter of a cheque dishonour case and shall shade light based on Negotiable instrument act, contact act and evidence act.
The basic idea of Negotiable instrument
To understand the whole concept of negotiable instrument act and the debate concerning cheque and relation with contract we must picture the general purpose of the Negotiable instrument act, 1881.
A negotiable instrument is an exchangeable document that promises or assures to pay a sum of money, and these instruments i.e Bill of exchange, promissory note, cheque are used as an alternative of money.
Let’s have a practical example to visualize it,
Zahangir Mama, owner of a stationery shop, sold a showpiece to Rahim at taka 820, Rahim provided him 1000 taka note, now Zahangir mama failed to return the change because there were not enough small notes to return the due, at this situation Zahangir Mama provided Rahim a cash memo on which he wrote that he owes Rahim 180 taka and shall provide it on the presentation of this cash memo.
This is a negotiable instrument, you can consider it as a promissory note. It is used as an alternative to money moreover it can change hands without further procedure. For example, Rahim can send his younger brother with the cash memo and Zahangir mama will pay the due amount.
So, a negotiable instrument is a document
- Which is an easily producible document
- Does not require further legal proceeding
- Shall be used as an alternative of money
- Where there is a relation between the parties
- Creates liability on the drawer
Here we got an overall idea of Negotiable instruments, now let’s look at the matter of cheque which is our body to dissect.
Know more about the laws and procedures about cheque dishonour case here: Cheque dishonour case under Negotiable Instrument Act, 1881
Cheque and cheque dishonour
“Cheque” is defined under section 6 of the Negotiable instrument act, 1881. It provided,
A “cheque” is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand.
And bill of exchange is defined under section 5 of the act, the section provided,
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 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.
Here the concept of a cheque is pretty clear and completely supports our general understanding of “negotiable instrument” and why should not it be? Because a cheque is, after all, a negotiable instrument.
law of Cheque dishonour
We have to understand the law of Cheque dishonour. Where a cheque is dishonoured the victim can file a complaint case against the drawer. The procedure and punishment is provided under section 138 of the Negotiable Instrument Act, 1881
Section 138 of NI act provided,
(1) Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account [* * *] is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provision of this Act, be punished with imprisonment for a term which may extend to one year, or with fine which may extend to 24[thrice] the amount of the cheque, or with both:
Provided that nothing contained in this section shall apply unless-
(a) the cheque has been presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier;
(b) the payee or the holder in due course of the cheque, as the case may be, makes a demand for the payment of the said amount of money by giving a notice, in writing, to the drawer of the cheque, within 25[thirty days] of the receipt of information by him from the bank regarding the return of the cheque as unpaid, and
(c) the drawer of such cheque fails to make the payment of the said amount of money to the payee or, as the case may be, to the holder in due course of the cheque, within 26[thirty days] of the receipt of the said notice.
[(1A) The notice required to be served under clause (b) of sub-section (1) shall be served in the following manner-
(a) by delivering it to the person on whom it is to be served; or
(b) by sending it by registered post with acknowledgement due to that person at his usual or last known place of abode or business in Bangladesh; or
(c) by publication in a daily Bangla national newspaper having wide circulation.]
(2) Where any fine is realized under sub-section (1), any amount up to the face value of the cheque as far as is covered by the fine realized shall be paid to the holder.
(3) Notwithstanding anything contained in sub- section (1) and (2), the holder of the cheque shall retain his right to establish his claim through civil court if whole or any part of the value of the cheque remains unrealized.]
[Here the Astros mask and without prejudice in the 1st subsection must be noted for future reference.]
Reading all relevant sections that directly deal with cheque and cheque dishonour no requirement of contract is found, then the question arises from where the term “contract” came into the cheque dishonour debate?
The answer lies under section 43 of the Negotiable Instrument Act, 1881. Section 43 talks about the consideration and its relation negotiable instrument.
section 43 provided;
A negotiable instrument made, drawn, accepted, indorsed or transferred without consideration, or for a consideration which fails, creates no obligation of payment between the parties to the transaction. But if any such party has transferred the instrument with or without indorsement to a holder for consideration, such holder, and every subsequent holder deriving title from him, may recover the amount due on such instrument from the transferor for consideration or any prior party thereto.
Exception I – No party for whose accommodation a negotiable instrument has been made, drawn, accepted or indorsed can, if he have paid the amount thereof, recover thereon such amount from any person who became a party to such instrument for his accommodation.
Exception II – No party to the instrument who has induced any other party to make, draw, accept, indorse or transfer the same to him for a consideration which he has failed to pay or perform in full shall recover thereon an amount exceeding the value of the consideration (if any) which he has actually paid or performed.
Let’s put it in a simple term, the section articulated that,
If any negotiable instrument is issued without any consideration or with consideration where the purpose of the consideration has failed, there will be no obligation to the instrument provider to pay according to the instrument. And where any such instrument is made the holder or subsequent holder shall have the same title as the original holder.
Subsequent two explanations showed that,
- If the consideration (money) is already paid the drawer shall not be liable for further payment, and,
- If any party induced other party to issue a negotiable instrument or transfer a negotiable instrument for consideration but later failed to pay such consideration shall be
What is consideration?
Consideration is a valuable thing or act that is a desire of a party from another party as an exchange of his product/act/job in a contract, but it itself does not form a valid contract. It is just a part of a contract.
For example, 10 apples sold for 50 takas. Here, both 10 apples and 50 takas are considered as a consideration for the opposite party. They consider them equal value and thus exchange one for another.
Consideration is defined under section 2(d) of the Contract act (click the link for more)
So, it is clear that consideration is needed to validate or to make any party liable for the transaction through a negotiable instrument. But that may or may not be a contract.
Origine of confusion regarding contract in relation to cheque dishonour?
Well, it seems that the recent judgment has been misread by certain jurists thus creating the confusion, the concerned judgment is a judgment of the Appellate Division of Bangladesh Supreme Court. More specifically, Md. Abul Kaher Shahin Vs. Emran Rashid and another, Criminal Appeal Nos. 63-66 of 2017
Before going to the case property let me share the most interesting matter regarding the judgement, in the whole judgement there has not a single mention of “Contract” or “Valid Contract”
Let’s understand the recent judgment of cheque dishonour and it’s context which related cheque dishonour and contract together.
For an overall discussion on this topic you can consider our youtube discussion (In Bangla) here:
Md. Abul Kaher Shahin Vs. Emran Rashid and another
Fact in short:
Complaint Imran Rashed Chowdhury and others wanted to sell a property of 30 Kathas of land located at Gulshan, Dhaka. Which they accrued form Shamchi Khanam. Having that information a broker named Abul Kaher Shahin contracted them and told them the present (then) value of the property is 150 Crore taka. Mr. Abdul Kaher ensured them he can immediately sell the property if he has been provided 13% commission of the sale, thus he entered into a registered memo/agreement that Abdul Kaher will sell the property at market price (150 Cr) in 90 days and Imran Rashed and others provide 4 post-dated cheques of total 4 Corer 50 lac taka.
Subsequently, Mr Abul Kaher Shahin failed to sell the property in the said 90 days, meanwhile, Imran sold the said property then asked Mr. Abul Kaher returned those cheques at the same time he ordered the bank to “stop payment” against those cheques.
On the other hand, Mr. Abul kaher did not return those cheques rather he submitted those cheques and got dishonoured and then filed a complaint case against Imran and others for cheque dishonour under section 138 of the Negotiable Instrument act.
Progress of the case:
The case first appeared before the learned Metropolitan Session Judge, Sylhet. The learned court convicted Emran Rashid (respondent no. 1) with various punishments for four cheques.
The accused party challenged the judgment and appealed to the High Court Division of Bangladesh Supreme Court.
the High Court Division heard the case and disposed of all the appeals analogously and acquitted the respondent of all the charges. Then the complainant has preferred these 4(four) appeals in Appellate Division upon getting leave.
In the Appellate Division, Learned Senior Counsel Mr. Mansurul Haque Chowdhury appeared on behalf of the appellant (Abul Kaher Shahin), he argued that,
After deletion of the words “for the discharge in whole or in part of any debt or other liability” by the Act No. XVII of 2002, the Court is empowered to consider the contents of the cheque and cheque only and it can not examine whether the same was issued for the discharge of any debt or liability or not.
[Which was removed from section 138 of the NI act at the place of astros mask]
He also added that High Court Division improperly dealt with the issue and points outside the preview of the registered agreement between the parties.
In the response the respondent senior counsel Mr. Moudud Ahmed replied though the word “for the discharge in whole or in part of any debt or other liability” were deleted from section 138 its not an isolated section, therefore, it must be read with sections 4, 6, 8, 9, 43, 58, 118 and 138.
The council focused on the part “without prejudice to any other provision of this act” under section 138 (1).
Therefore, in the preview of those sections, it was provided that the Negotiable Instrument shall be read and be applicable as a whole, consideration is an important element to create liability against a Negotiable instrument. When the violation of such liability is concerned and when a cheque is dishonoured the drawer must prove that there was no consideration or the act against the consideration was not performed to prove him not guilty.
The basics of cheque dishonour law have already been discussed in the first half of the article. In that part we said that no contract is needed of cheque dishonour claims, which I guess has already been made clear but if we narrow it down and with the last para analogously say the complainant does not even need to prove consideration. Probably that would raise some questions and further explanation would be needed. In this part, we would analyze that proposition with legal support.
It is already clear that though a contract is not necessary but consideration is a vital and necessary part for cheque dishonour case and section 43 of Negotiable instrument made it undoubtedly clear.
Then the question arises why did we mention the complainant does not even need to prove consideration. The answer lies under section 118 of the Negotiable Instrument Act, 1881.
Section 118 deals with, “presumptions as to negotiable instruments”. Presumption is a vital element of evidence and it determines how a court should perceive and treat a matter.
In section 4 of the Evidence Act, there are three types of presumption on facts, documents and circumstances.
- May Presumption: The court may either regard such fact as proved, unless and until it is disproved, or may call for proof of it
- Shall Presumption: The court shall regard such fact as proved, unless and until it is disproved
- Conclusive proof: The Court shall, on proof of the one fact, regard the other as proved, and shall not allow evidence to be given for the purpose of disproving it.
In what situation and where which presumption to be drawn depends on the relevant law, on that fact, issue or document.
Section 118 deals with presumption, that means, the court shall regard certain facts as proved, unless and until it is disproved by the party for which the presumption would render harmful.
For specific cheque dishonour issue subsection (a) of section 118 of the evidence act is most important. It reads,
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;
What it means is, where there is a cheque drawn and given to a party which subsequently dishonoured and upon presentation that matter before the court by default shall presume that the cheque is a valid one and there was a consideration against cheque. This provision also signifies that as shall presumption is there the complainant does not need to mention or prove that there was a consideration, according to the law it is the duty of the court to presume that the consideration is there but the accused holds the right to rebut on such presumption. And to do that the accused must prove that there was no consideration or there was a consideration but the consideration was not fulfilled by the other party.
The same principle of proof is also supported and cleared by the subsequent section, 119; it provided,
In a suit upon an instrument which has been dishonoured, the Court shall, on proof of the protest, presume the fact of dishonour, unless and until such fact is disproved.
reverse onus or shift of the burden of proof
This is called reverse onus or shift of the burden of proof, it can be better understood via the interpretation of the Evidence Act, 1872, chapter VII of the act deals with burden of proof.
In short, the general principle to prove something lies to the claimant (section 101 of evidence act) but where there is an exception to the general principle the burden of proof shifts to the person who claims that exception. (section 102 & 105 of evidence act)
In the matter of cheque dishonour when a cheque is provided the court shall presume that there was a consideration against it, the court shall presume it in view of section 118 (1) of the Negotiable Instrument Act. Therefore the claimant/complainant does not require to prove or mention any consideration or any contract.
Now, as the accused shall on the face of the complainant and where it is proved or accepted the cheque was duly provided and rejected even after maintaining the procedure of section 138 be liable for cheque dishonour and shall be punished unless otherwise proved.
Therefore, it is the liability of the accused to prove; 1. There was no consideration or 2. There was a consideration that failed to get relief from the criminal liability under section 138.
The same principle of reverse onus has been confirmed in the recent judgment of Md. Abul Kaher Shahin Vs. Emran Rashid and another, it provided,
“Once there is admission of the execution of the cheque or the same is proved to have been executed, the presumption under section 118(a) of the Act is raised that it is supported by consideration. The category of “stop payment cheque” would be subject to rebuttal and hence it would be an offence only if the drawer of the cheque fails to discharge the burden of rebuttal. The accused person can prove the non-existence of a consideration by raising a probable defence. If the accused discharges the initial onus of prove showing that the existence of consideration was improbable or doubtful or the same was illegal, the onus would shift to the complainant. He will be obliged to prove it as a matter of fact and upon its failure to prove would disentitle him to grant of relief on the basis of negotiable instrument. Where the accused person fails to 15 discharge the initial onus of proof by showing the non existence of the consideration, the complainant would invariably be held entitled to the benefit of presumption arising under section 118(a) of the Act in his favour. To disprove the presumption, the accused person has to bring on record such facts and circumstances upon consideration of which the Court may either believe that the consideration did not exist or its non existence was so probable that a prudent man would under the circumstances of the case, shall not act upon the plea that it did not exist.” (page 14)
This is not a stand-alone observation or nor it a new development, the Appellate Division found the support in the favour of this argument in Bharat Barrel and
Drum Manufacturer Co. Vs. Amin Chand Payrelal, AIR 1999(SC) 1008 and Mallavarapu Kasivisweswara Rao V. Thandikonda Ramulu Firm and others, AIR 2008 SC 2898.
The same has been observed in our (Bangladeshi) recent judgment too, In Md. Ershad Ali vs. The State and another. Criminal Appeal No. 1535 & 1536 of 2020
In this case, the court provided,
“Presumption of consideration and rebuttal Law presumes that every cheque is drawn for consideration, until the contrary is proved (Section 118(a) of the N.I. Act). A cheque drawn without consideration creates no obligation of 10 payment (Section 43). It is a valid defence available to the accused that the cheque was drawn without consideration. The issue is no longer a res integra. Thus, the presumption under Section 118(a) is rebuttable.”
The Hon’ble Court also held that,
“The accused person can prove the nonexistence of a consideration by raising a probable defence. If the accused discharges the initial onus of prove showing that the existence of consideration was improbable or doubtful or the same was illegal, the onus would shift to the complainant. He will be obliged to prove it as a matter of fact and upon its failure to prove would disentitle him to grant of relief
on the basis of negotiable instrument. Where the accused person fails to discharge the initial onus of proof by showing the non existence of the consideration, the complainant would invariably be held entitled to the benefit of presumption arising under section 118(a) of the Act in his favour. To disprove the presumption, the accused person has to bring on record such facts and circumstances upon consideration of which the Court may either believe that the consideration did not exist or its non existence was so probable that a prudent man would under the circumstances of the case, shall not act upon the plea that it did not exist”. (emphasis supplied)
It has been further held in the above-mentioned case,
“However, the court need not insist in every case that the accused should disprove the nonexistence of consideration and debt by leading direct evidence because the existence of negative evidence is neither possible nor contemplated. At the same time, it is clear that bare denial of the passing of consideration apparently would not serve the purpose of the accused. Something which is probable has to be brought on record for getting the burden of proof shifted to the complainant. The burden of proof of the accused to disprove the presumption under sections 118 and 138 of the Act is not so heavy.
The preponderance of probability through direct or substantial evidence is sufficient enough to shift the onus to the complainant. Inference of preponderance of probabilities can be drawn from the materials on record and also by reference to the circumstances upon which the party relies”. (emphasis supplied)
The matter of burden of proof is quite clear and it is also clear why the accused should provide evidence to save him but some protection has also been given to both the accused and the compliment.
A general denial of consideration by accused would not be acceptable on the other hand, in the matter of special circumstance the burden can be shifted to the complainant too.
Why was consideration added in the first place?
Well if we see the nature of the Negotiable instrument act it is clear that it creates a strict liability to facilitate the activities in the trade and commerce. [Md. Abul Kaher Shahin Vs. Emran Rashid and another (p.6)] The legislature might have thought the strict restriction of a contract might be hideous for the purpose of Negotiable instrument. But consideration was added to make it more flexible but at the same time to add some control of illegal trade, fraud etc. Every consideration serves a purpose without which a negotiable instrument shall render valueless. Which I believe is also necessary to uphold the value of an instrument by baking it up with consideration.
So the proposition that a valid contract or contract is needed for a cheque dishonour case is untrue, misleading and misinterpreted. Moreover when the allegation is made referring to a recent case, Md. Abul Kaher Shahin Vs. Emran Rashid and another it is far from the truth because there they had a registered agreement but that did not ensure the dishonoured cheque money because the consideration failed on the face of it.
In our first portion of this investigation, we said for general people, someone need not to think about this confusing matter of consideration and contract. If there is a valid cheque dishonoured maintaining all the procedures of section 138 that would be enough to proceed. Just contact your lawyer. On the other hand, for lawyers and jurists, it is not that simple, they have to short out the matter of consideration, whether he is on behalf of the complainant or on behalf of the accused. Which somewhat resembles contact but not a stand-alone contract. The fact must be understood thoroughly with the law and in the light of recent development.
At the same time, it is our duty to avoid presenting unnecessary legal complexity to stop the ripple effect of misinformation which may mislead general people and encourage to bypass legal process, no doubt that would hurt our legal system and put people in greater trouble.
You can also read our Bangla article on this topic here for easy and basic understanding.