CS Professional · Banking and Insurance - Laws and Practice · Payment and Collection of Cheques and Other Negotiable Instruments
Rohan Mehta issued a cheque to Sunita Traders, which was dishonoured for insufficient funds. In the prosecution under section 138 he argues that when he issued the cheque he honestly had no reason to believe it would be dishonoured on presentment. Under the Negotiable Instruments Act, 1881, what is the effect of this argument?
His argument fails. Section 140 says it is no defence in a section 138 prosecution that the drawer had no reason to believe, when issuing the cheque, that it might be dishonoured on presentment for the reasons stated in that section.
- AIt is a valid defence if he proves his honest belief by affidavit
- BIt is a valid defence only if the payee had earlier accepted post-dated cheques from him
- CIt is not a defence, because section 140 bars itCorrect
- DIt is a defence only when the dishonour was for insufficient funds and not for another reason
Explanation
Section 140 states that it is not a defence in a section 138 prosecution that the drawer had no reason to believe, when issuing the cheque, that it might be dishonoured for the reasons stated in that section. Rohan's belief therefore does not help him. The distractor linking the defence to insufficient funds is wrong because the bar applies to the reasons stated in section 138.
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