In a recent judgment in the case of MSR Leathers v. S. Palanipan1, the Supreme Court has discussed when a holder of a cheque may initiate criminal proceedings (under section 138 of the Negotiable Instruments Act, 1885) against the drawer, if the cheque is dishonoured due to insufficiency of funds.
According to a previous judgment of the Supreme Court2, the cause of action in such cases would arise only when the drawer of the cheque fails to make the payment within fifteen days of the receipt of the notice from the holder that the cheque has been dishonoured. The holder of the cheque could then make a criminal complaint against the drawer, within a period of one month. If the holder did not initiate prosecution within one month of the cause of action arising, there would be no fresh cause of action upon a subsequent dishonour of the cheque.
This position has been changed in MSR Leathers v. S. Palanipan where it was held that the holder of the cheque does not have an obligation to initiate prosecution against the drawer. Every subsequent presentment of the cheque and dishonour would give rise to a fresh cause of action for the holder of the cheque. The decision to not initiate prosecution against the drawer of the cheque is often due to the assurance of the drawer that given some time, the payment covered by the cheque would be arranged. So long as the cheque remains unpaid, it is the continuing obligation of the drawer of the cheque to arrange for the payment.