The Negotiable Instruments Act, 1881 provides for the legal framework governing the use and transfer of negotiable instruments such as promissory notes, cheques, and bills of exchange. Section 138 of the Act deals with the dishonor of cheques and provides for a criminal offense in case of such dishonor.
When a cheque is dishonored due to insufficient funds or any other reason, the holder of the cheque may file a complaint under Section 138 of the Act against the drawer of the cheque. The drawer of the cheque may then hire a defense lawyer to defend against the suit filed under Section 138.
The defense lawyer’s point in such cases would depend on the case’s specific circumstances. However, some common defence arguments that a lawyer may present include:
- Lack of knowledge: The defence lawyer may argue that the drawer of the cheque was not aware of the insufficiency of funds or any other reason for the dishonour of the cheque. The lawyer may also argue that the cheque was issued as a security and not with the intention of payment.
- Technical Deficiencies: The defence lawyer may argue that the cheque was not issued in accordance with the legal requirements under the Act. For instance, the cheque may not have been appropriately signed, or it may have been post-dated.
- Dispute over Liability: The defence lawyer may argue that there is a dispute over the liability to pay the cheque amount. For example, the cheque may have been issued for payment of a debt that is in dispute, or the cheque may have been issued as a joint account, and one of the account holders may dispute the liability.
- Illegality or fraud: The defence lawyer may argue that the transaction for which the cheque was issued was illegal or fraudulent, and therefore the dishonour of the cheque cannot be held against the drawer.
- Payment made: The defence lawyer may argue that the cheque amount has already been paid by the drawer, either in full or in part, before the dishonour of the cheque.
- Time-barred: The defence lawyer may argue that the suit is time-barred under the provisions of the Limitation Act, 1963. The Act provides for a limitation period within which a suit must be filed, and if the suit is filed after the limitation period, it may be dismissed.
- No proper notice: The defence lawyer may argue that the notice required under Section 138 of the Act was not served properly, or that the notice was defective in some way. The Act requires that a notice of demand must be sent to the drawer of the cheque before filing a suit, and if the notice is not served properly, the suit may be dismissed.
- Mere signature: The defence lawyer may argue that the cheque was issued without any consideration or that the drawer had only signed the cheque as a mere formality, and there was no intention to create a legally enforceable obligation.
- Coercion or undue influence: The defence lawyer may argue that the drawer of the cheque was coerced or unduly influenced into issuing the cheque, and therefore the cheque cannot be enforced against the drawer.
- Mistake or error: The defence lawyer may argue that the cheque was issued due to a mistake or error, and the drawer did not intend to issue the cheque or did not intend to issue it for the amount that is claimed in the suit.
- Force majeure: The defence lawyer may argue that the dishonour of the cheque was due to unforeseeable circumstances beyond the control of the drawer, such as natural disasters, strikes, or other events of force majeure.
- Estoppel: The defence lawyer may argue that the holder of the cheque is estopped from claiming the cheque amount because of their own conduct. For example, if the holder of the cheque had previously represented to the drawer that they would not deposit the cheque, and then deposited it later, the defence lawyer may argue that the holder is estopped from claiming the amount.
- Waiver: The defence lawyer may argue that the holder of the cheque had waived their right to claim the cheque amount, either expressly or impliedly. For example, if the holder had previously accepted a partial payment from the drawer, the defence lawyer may argue that the holder had impliedly waived their right to claim the remaining amount.
- Good faith: The defence lawyer may argue that the drawer had issued the cheque in good faith and with the belief that the cheque would be honoured. The defence lawyer may argue that the drawer had no intention to cheat or defraud the holder of the cheque.
- Incompetent drawer: The defence lawyer may argue that the drawer of the cheque was incompetent to issue the cheque, either due to mental incapacity or any other reason, and therefore the cheque cannot be enforced against the drawer.
- Forgery: The defence lawyer may argue that the signature on the cheque is a forgery and that the drawer did not issue the cheque.
- Illegality: The defence lawyer may argue that the underlying transaction for which the cheque was issued is illegal or against public policy, and therefore the cheque cannot be enforced.
- Lack of knowledge or consent: The defence lawyer may argue that the drawer had no knowledge of the transaction for which the cheque was issued, or that the drawer did not give their consent for the transaction.
- Improper endorsement: The defence lawyer may argue that the endorsement on the cheque was improper or fraudulent, and therefore the cheque cannot be enforced.
- Bank error: The defence lawyer may argue that the dishonour of the cheque was due to an error or omission by the bank, and that the drawer cannot be held liable for the same.
- Absence of debt or liability: The defence lawyer may argue that there was no debt or liability owed to the holder of the cheque, and therefore the cheque cannot be enforced.
- Absence of jurisdiction: The defence lawyer may argue that the court does not have jurisdiction to hear the case, either because the suit was filed in the wrong court or because the court does not have territorial jurisdiction.
- Improper service of process: The defence lawyer may argue that the summons or other legal documents were not served on the drawer properly, or that there were errors in the service of process.
- Co-accused liable: The defence lawyer may argue that another party was responsible for the dishonour of the cheque, and that party should be held liable instead of the drawer.
- Genuine dispute: The defence lawyer may argue that there is a genuine dispute between the parties regarding the underlying transaction, and that the dispute must be resolved before the cheque liability can be determined.
- Payment made: The defence lawyer may argue that the cheque amount has already been paid to the holder, either partially or fully, and that there is no liability left to be claimed.
- Delay in presenting the cheque: The defence lawyer may argue that the holder did not present the cheque for payment within the stipulated time limit or within a reasonable time, and therefore the drawer cannot be held liable for the dishonour of the cheque.
- Accidental loss or destruction: The defence lawyer may argue that the cheque was accidentally lost or destroyed, and that the drawer is not liable for the same.
- Misuse of cheque: The defence lawyer may argue that the cheque was issued for a specific purpose or under specific terms and conditions, and that the holder misused the cheque for another purpose.
- Misrepresentation: The defence lawyer may argue that the holder induced the drawer to issue the cheque based on false or misleading representations, and that the drawer should not be held liable for the dishonour of the cheque.
- Breach of contract: The defence lawyer may argue that the holder of the cheque breached a contract or agreement with the drawer, and that the dishonour of the cheque was a result of the breach.
- Fraud or misrepresentation: The defence lawyer may argue that the holder obtained the cheque through fraud or misrepresentation, and that the drawer should not be held liable for the same.
- Mere signature: The defence lawyer may argue that the drawer signed the cheque without any intention to create a liability, and that the cheque was signed as a mere formality.
- Insufficient funds due to bank error: The defence lawyer may argue that the insufficient funds in the drawer’s account were due to a bank error, and that the drawer should not be held liable for the dishonour of the cheque.
- Discharge of debt: The defence lawyer may argue that the debt owed by the drawer to the holder was discharged or waived, and that the holder cannot claim the cheque amount as a result.
These are some additional defenses that a lawyer may present in a suit filed under Section 138 of the Negotiable Instruments Act. However, the specific defences would depend on the facts and circumstances of each case. It is important to note that the defences available to the drawer of the cheque are not exhaustive and may vary from case to case. The best defense strategy will depend on the specific details of the case, and it is always advisable to consult a lawyer for legal advice.