A Comprehensive Guide to Cheque Fraud and Dishonouring of Cheques in Pakistan

Josh and Mak International are well-equipped to provide expert legal advice and representation on issues related to stale cheques, dishonored cheques, debt recovery, legal notices for cheque dishonoring, lodging of FIRs, and other relevant matters. We offer our services to individuals, firms, and companies, both local and foreign. For a detailed consultancy and advice, you can contact us at aemen@joshandmak.com

Other Useful Links on legal matters involving Cheques are as follows 

Pakistani Law on Stale Cheuqes https://joshandmakinternational.com/the-rule-on-stale-cheques-1994-mld-271-habib-bank-limited-vs-jamilur-rehman/

Post Dated Cheques :

Debt and Money recovery where Cheques are involved : 

Disclaimer: This Client Information Article serves informational purposes only and should not be construed as legal advice.

The law mentioned is up-to-date until 2023

Cheque Fraud. A Criminal Offence in Pakistan

A dishonored cheque is one that, when presented for payment, is refused by the bank due to insufficient funds or non-compliance with the required order. Dishonestly issuing a cheque is considered a criminal offence in Pakistan and is governed by section 489-F of the Pakistan Penal Code, 1860. The section states:

489-F Dishonestly issuing a cheque: Whoever dishonestly issues a cheque towards re-payment of a loan or fulfillment of an obligation which is dishonored on presentation shall be punishable with imprisonment, which may extend to three years, and with a fine unless he can establish, for which the burden of proof shall rest on him, that he had made arrangements with his bank to ensure that the cheque would be honored and that the bank was at fault in not honoring the cheque.

Key Points:

1. Cognizable Offence: The offence under section 489-F is cognizable, meaning that the police have the authority to arrest the accused without a warrant.
2. Non-Bailable: The offence is non-bailable, which means that the accused cannot be released on bail as a matter of right. Bail may be granted at the discretion of the court, depending on the specific circumstances of the case.
3. Compoundable: The offence is compoundable, implying that the complainant (payee) and the accused (drawer of the cheque) can reach a settlement and withdraw the case with the permission of the court.
4. Burden of Proof: In case the accused claims that he had made arrangements with his bank to ensure the cheque’s honor, he carries the burden of proving this fact.

Important Note:

Each case involving the dishonoring of a cheque must be evaluated based on its own unique facts and circumstances. The legal implications and possible defences may vary depending on the specific situation. It is advisable for individuals facing such issues to seek proper legal advice and representation to navigate through the complexities of the legal process effectively.

DISHONOURING OF A BANK CHEQUE : Civil Matter 

The laws related to trade, commerce, and business play a significant role in building a strong economic foundation for society. Cheques, being negotiable instruments, are governed by various laws and regulations. Dishonouring of a bank cheque is a common issue faced in Pakistan, and it involves several legal provisions.

A “bill of exchange” is defined under Section 5 of the Negotiable Instruments Act, and a “cheque” is defined under Section 6. A cheque is a form of a bill of exchange drawn on a specified banker and payable on demand.

There are specific provisions, such as Sections 123, 124, 129, and 130 of the Negotiable Instruments Act, related to crossed cheques, providing special rules for their handling. Dishonoured cheques can be subject to criminal penalties under Section 489F of the Pakistan Penal Code (PPC), which applies to dishonest issuance of cheques for loan repayment or fulfilling obligations.

To avoid cheque fraud and dishonour, individuals and businesses can take precautions like secure chequebook storage, prompt account reconciliation, and using modern payment methods instead of cheques.

If a cheque fraud or dishonour occurs, immediate actions include reporting to the financial institution or the police, negotiating with the bank or defaulting parties, sending a legal notice for cheque payment, and registering an FIR under Section 489F of the PPC. Both civil and criminal remedies can be pursued before the Banking Court under various banking laws.

Criminal and civil liabilities resulting from dishonoured cheques run parallel and simultaneous, and one does not bar the other. Civil remedies under Order-XXXVII of the Civil Procedure Code and criminal remedies under Section 489F PPC can be availed simultaneously.

Overall, the laws related to dishonouring of bank cheques in Pakistan aim to protect the rights of both payers and payees and ensure a fair and efficient financial system

Legal Note on Key Sections and Rules Relevant to a Civil Legal Action involving Dishonored Cheques:

(1) SECTION 6 OF THE NEGOTIABLE INSTRUMENTS ACT:

The Negotiable Instruments Act defines a “cheque” in Section 6 as a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand. In simple terms, a cheque is an instrument that allows the holder to demand payment from the bank on which it is drawn.

(2) SECTION 139 OF THE NEGOTIABLE INSTRUMENTS ACT:

Section 139 of the Negotiable Instruments Act establishes a legal presumption in favor of the holder of a dishonored cheque. It states that unless the contrary is proved, it shall be presumed that the holder of a cheque received it for the discharge, either wholly or partially, of any debt or other liability. This presumption places the burden of proof on the accused to show that the cheque was not issued for the purpose stated in Section 138.

(3) ORDER XXXVII, RULE 2(2) OF CIVIL PROCEDURE CODE (C.P.C):

Order XXXVII, Rule 2(2) of the Civil Procedure Code (C.P.C) outlines the procedure for summary suits, including cases related to dishonored cheques. According to this rule, if the plaint and summons are in the prescribed forms, the defendant must obtain leave from a judge to appear and defend the suit. Failure to obtain leave or to appear and defend in pursuance thereof will result in the allegations in the plaint being deemed admitted, and the plaintiff will be entitled to a decree.

(4) ORDER XXXVII, RULE 3 OF CIVIL PROCEDURE CODE (C.P.C):

Order XXXVII, Rule 3 of the C.P.C deals with situations where the defendant seeks to defend the suit on merits. In such cases, the defendant must apply for leave to appear and defend the suit by submitting affidavits disclosing facts that would require the holder of the cheque to prove consideration or any other relevant facts. The court may grant leave to defend unconditionally or subject to specific terms, such as making a payment into court or providing security.

(5) Presumptions in Law:

Presumptions in law are grounded in reasonably and appreciably truthful facts, supported by legal logic and reasoning as a basis. These presumptions hold the status of correctness until rebutted with contrary evidence or proof.

Criminal Law Actions

(6) Section 20, Subsection (4) of the Financial Institutions (Recovery of Finances) Ordinance, 2001:

Section 20(4) of the Financial Institutions (Recovery of Finances) Ordinance, 2001, addresses the dishonoring of cheques related to repayment of finances or fulfillment of obligations. According to this section, if a person dishonestly issues a cheque that is dishonored on presentation, they shall be punishable with imprisonment for up to one year, or a fine, or both, unless they can prove, bearing the burden of proof, that they had made arrangements with their bank to ensure the cheque’s honor and that the bank was at fault for its dishonor.

(7) Section 489-F of the Pakistan Penal Code (Amended by Ordinance, LXXXV of 2002):

Section 489-F was added to the Pakistan Penal Code after amendment by Ordinance, LXXXV of 2002. This section deals with the dishonest issuing of cheques pertaining to the repayment of loans or fulfillment of obligations. If such a cheque is dishonored on presentation, the offender may face imprisonment for up to three years, or a fine, or both. However, the burden of proof rests on the accused to establish that they had made arrangements with their bank to ensure the cheque’s honor and that the bank was at fault for its dishonor.

(8) Section 2(e) of the Financial Institutions (Recovery of Finances) Ordinance, 2001, defines the term “Obligation” as follows:

(e) “Obligation” includes:

(i) Any agreement for the repayment or extension of time in repayment of a finance or for its restructuring or renewal or for payment or extension of time in payment or any other amounts relating to a finance or liquidated damages; and

(ii) Any and all representations, warranties, and covenants made by or on behalf of the customer to a financial institution at any stage, including representations, warranties, and covenants with regard to the ownership, mortgage, pledge, hypothecation, or assignment of, or other charge on assets or properties or repayment of a finance or payment of any other amounts relating to a finance or performance of an undertaking or fulfillment of a promise; and

(iii) All duties imposed on the customer under this Ordinance.

Additionally, in the same ordinance, Section 2(f) defines the term “rules” to mean rules made under this Ordinance.

A common complaint raised by our clients pertains to situations where they have received dishonored cheques from business parties or friends. In an effort to help our prospective clients understand the complexities and legal implications of such situations, we have prepared this guide on the dishonoring of cheques in Pakistan.

Legal Advice Note: Dishonor of Cheque and Procedure of Recovery

Dishonoring a cheque is not an offence if the signatory has made arrangements with the bank to ensure its honor, and the bank is at fault. However, if the cheque is issued dishonestly, legal remedies can be pursued. To recover the amount, the holder of the bounced cheque has the following options:

• Criminal Proceedings under Pakistan Penal Code (PPC):
• File an FIR under Section 498-F if the cheque is dishonored due to insufficient funds.
• Lodge the FIR either where the cheque was dishonored or where the accused carries out business.
• In case of a company, the signatory and CEO can be prosecuted for dishonest issuance of cheques.
• In a firm, the partner who issued the cheque can be prosecuted.
• The Sessions Court will handle the case and issue arrest warrants for the accused if necessary.
• Punishment for bouncing a cheque may include imprisonment and fine.
• Suit for Recovery in Civil Court:
• Serve a 14-day notice to the signatory before filing a suit for recovery.
• File the recovery suit in the civil court of the district where the signatory resides or the business operates.
• In the case of a firm or company, all responsible parties can be sued according to corporate law.

It is important to note that civil and criminal proceedings can proceed concurrently, and a civil court cannot stop criminal investigations or vice versa. Pursuing both remedies simultaneously is permissible.

Jurisdiction of Pakistan, Offence u/s 489-F

The newly inserted Section 489-F of the law defines the offence of dishonestly issuing a cheque as follows:

• Issuance of a cheque towards re-payment of a loan or fulfillment of an obligation.
• Dishonoring of the cheque upon presentation.
• The accused can establish a defence by proving that arrangements were made with the bank to ensure the cheque’s honor, and the bank was at fault for dishonoring it.

Ingredients of the Offence u/s 489-F:

• Issuance of a cheque.
• Dishonest intention behind the issuance.
• The purpose of the cheque – repayment of a loan or fulfillment of an obligation.
• Dishonoring of the cheque upon presentation.

Defence of the Accused u/s 489-F:

The accused can defend themselves by proving they made arrangements with the bank, but this defence doesn’t absolve them if the other ingredients are proven by the prosecution.

Cognizance, Bail, Quantum of Punishment, and Mode of Trial u/s 489-F:

The offence under Section 489-F is cognizable and not bailable. It carries a punishment of up to 3 years or a fine, or both. The trial is conducted as a regular trial, not a summary trial.

Standard of Evidence:

The term “dishonestly” should be objectively considered as either wrongful gain or wrongful loss as defined in the law. The prosecution must prove the issuance of the cheque was dishonest and for the repayment of a loan or fulfillment of an obligation. The existence of the loan or obligation is vital for establishing criminal liability.

Cheque Fraud: Avoidance and Legal Remedies

Cheque fraud, including bounced and dishonored cheques, is a rapidly growing financial crime in Pakistan. Fraudsters employ various methods to steal money from depositors, creditors, and lenders. There are four main types of cheque fraud: counterfeit, forged, altered, and dishonestly issued cheques.

Protecting Yourself from Cheque Fraud:

• Use electronic payments whenever possible, reducing the reliance on risk-prone cheques.
• Store cheque stock securely and destroy unused cheques from closed accounts immediately.
• Implement checks and balances in cheque issuance and reconciliation processes.
• Reconcile your account statements promptly upon receipt.
• When re-ordering cheques, use continuous serial numbers and order only one set per account.
• For laser-printed cheques, employ multiple passwords and use cheque paper with toner anchorage.
• Use high-quality cheques with security features.

Legal Remedies for Cheque Fraud:

• Report any suspected fraud or outstanding cheques to the bank immediately.
• Attempt negotiation with the defaulting party or banker.
• Send a legal notice to the defaulter for cheque payment.
• Register an FIR (First Information Report) under Section 489F of the Pakistan Penal Code.
• Report the fraud to the FIA Electronic Frauds or the local police station.
• Initiate legal proceedings, including invoking Sections 22A/22B if required.
• Effect arrests and recover funds through legal means.
• Pursue civil and criminal litigation in the relevant banking court, civil court, or superior judiciary.

The development of the banking sector in Pakistan necessitated the introduction of new laws concerning banking, particularly the treatment of bank cheques, to address the increasing incidents of cheque dishonor.

Cheque Fraud in Pakistan: Check Dishonor and Cheque Bounce

Cheque fraud in Pakistan through check dishonor and cheque bounce is a common issue faced by individuals and companies alike. It occurs when a check is presented for payment or guarantee, but it doesn’t clear due to insufficient funds, being fake, stolen, or containing forged information.

Types of Cheque Fraud in Pakistan:

• Altering a Cheque: Modifying a validly issued cheque, changing the date, name, or amount.
• Counterfeit Cheque: Using non-legitimate cheques not issued by the bank.
• Forged Cheque: Utilizing a cheque without the account holder’s signature, often stolen.
• Using Someone Else’s Cheque: Stealing and maliciously using someone else’s cheque.
• Dishonestly Issuing a Cheque (Section 489F of the Pakistan Penal Code PPC): Issuing a cheque with dishonest intent, leading to dishonor on presentation.

Avoiding Cheque Fraud and Dishonor:

• Secure your chequebook in a safe place.
• Regularly review your monthly statements.
• Prefer modern payment methods over cheques whenever possible.

Steps to Take if Cheque Fraud or Dishonor Occurs:

• Report fraudulent activity to your bank and/or the police.
• Communicate with the bank and payee to resolve outstanding payments.
• Send a legal notice to the defaulter for cheque payment.
• Register an FIR under Section 489F of the Pakistan Penal Code.
• Report the fraud to FIA Electronic Frauds or the local police station.
• Pursue the case through appropriate legal procedures, including arrest and recovery if needed.
• Seek civil and criminal litigation in banking court, civil court, or superior judiciary in Pakistan.

A review of Caselaw on 489-F of the Pakistan Penal Code 

In the 2023 MLD 992 Lahore High Court case, the court highlighted that a case under Section 489-F is not a means of recovering outstanding dues, suggesting that civil proceedings under Order XXXVII of the Civil Procedure Code (CPC) offer remedies for debt recovery. This distinction is important because it underscores that the criminal provision is not to be used as a debt collection tool but to address the dishonest intent behind issuing a bad cheque.

Similarly, the 2023 YLRN 33 Karachi High Court Sindh case reiterates that the offence under Section 489-F requires a dishonest intention, issuance of the cheque towards repayment of an obligation, and the subsequent dishonour of the cheque. The refusal of pre-arrest bail in this matter also signals the court’s recognition of the gravity of the offence and the importance of the presence of the accused in the proceedings.In the case of Syed Naseem Ahmed, the Karachi High Court acquitted the accused, noting that the funds were made available on the same day the cheque was dishonoured, suggesting a lack of dishonesty. This points to the necessity for the prosecution to prove all elements of the offence, including the intent to defraud, beyond a reasonable doubt.The case of Pir Bux alias Asif Nawaz further reinforces the need for the prosecution to establish a prima facie case before bail can be denied, as the court dismissed the application for pre-arrest bail due to the accused’s admission of issuing the cheque in question.

The Lahore High Court in cases like 2023 MLD 992 and 2023 PCrLJ 499 has granted bail to the accused, considering the delay in FIR registration, the non-prohibitory nature of the offence under Section 497 of the Criminal Procedure Code (Cr.P.C.), and the lack of criminal antecedents of the accused. The court’s approach indicates a balanced consideration between the rights of the accused and the need for justice.

In the case of Arshad Mahmood v. State (2023 MLD 992 Lahore High Court Lahore), the court clarified that initiating a case under Section 489-F PPC is not intended as a mechanism for debt recovery, which should instead be pursued through civil proceedings, particularly under Order XXXVII of the CPC. This distinction is vital in understanding that the criminal justice system should not be utilised for the purpose of recovering debts, which are civil in nature.

Further, in Liaquat Ali v. State (2023 YLRN 33 Karachi High Court Sindh), the court underscored that the offence under Section 489-F PPC requires the presence of three essential ingredients: (a) the cheque should have been issued with a dishonest intention, (b) it should be towards the repayment of a loan or fulfilment of an obligation, and (c) the cheque should have been dishonoured upon presentation. The refusal to grant pre-arrest bail in this case signifies the seriousness with which courts regard the offence, ensuring that those accused remain available for trial.

In the acquittal of Syed Naseem Ahmed (2023 MLD 1114 Karachi High Court Sindh), the judgment highlighted the importance of establishing dishonest intent for the offence under Section 489-F PPC. The court found that the accused’s arrangement of funds in his account on the same day as the cheque was dishonoured negated the possibility of dishonesty.

Pir Bux alias Asif Nawaz’s case (2023 YLRN 5 Karachi High Court Sindh) reaffirmed that for bail to be granted, the defence must show substantial grounds for believing that the accused has not committed the offence. The absence of any record to substantiate the claim that the cheque was issued as security led to the dismissal of the bail application.

The Lahore High Court in Arshad Mahmood v. State (2023 MLD 992 Lahore High Court Lahore) granted bail to the accused, considering the delay in FIR registration and the non-prohibitory nature of the offence under Section 497 Cr.P.C., which suggests that the courts may favour bail unless there are significant reasons to justify its denial.

In Rao Ghulam Mustafa v. State (2023 PCrLJ 499 Lahore High Court Lahore), the court discussed the sentencing provisions under Section 489-F PPC, which allows for imprisonment, fine, or both. The use of the word ‘or’ indicates that imprisonment is not mandatory, and the court has the discretion to impose a fine alone.

In cases involving breach of trust, such as Farman Hussain v. State (2023 PCrLJ 398 Peshawar High Court), the court has been less inclined to grant bail, particularly when the accused held a position of financial responsibility.

InRaza Shah v. Superintendent Central Prison, Peshawar (2023 YLR 434 Peshawar High Court), the court exercised its discretion to make sentences run concurrently, which is indicative of a broader judicial discretion in sentencing matters.

The cases suggest that to constitute an offence under Section 489-F of the PPC, three essential ingredients must be present: (1) the cheque was issued with a dishonest intention, (2) it was for the repayment of a loan or fulfilment of an obligation, and (3) the cheque was dishonoured upon presentation (Liaquat Ali v. State, 2023 YLRN 33 Karachi-High-Court-Sindh). This framework aims to protect the sanctity of business transactions and deter financial irresponsibility.

In terms of connected provisions, Section 497 of the PPC, which deals with bail in cases of non-bailable offences, is often invoked in cases involving dishonoured cheques. The decision to grant bail in such cases typically hinges on several factors, including the seriousness of the offence, the likelihood of the accused absconding, the presence of dishonest intention, and the nature of the evidence against the accused. In cases where the accused appears to have acted with fraudulent intent or when there’s a clear breach of trust, bail is often denied (Farman Hussain v. State, 2023 PCrLJ 398 Peshawar-High-Court).

The judicial trend suggests that bail may be granted in charges under Section 489-F when there’s a delay in FIR registration, and the offence is non-prohibitory under Section 497 Cr.P.C. (Arshad Mahmood v. State, 2023 MLD 992 Lahore-High-Court-Lahore). Furthermore, the courts have been known to reduce the surety amount for bail if it is disproportionate to the nature of the offence and the accused’s financial means (Nasir Shah v. State, 2022 YLRN 24 Karachi-High-Court-Sindh).

Concurrent civil actions are evident in situations where the aggrieved party may choose to file a civil suit for the recovery of the cheque amount, in addition to pursuing criminal charges under Section 489-F. The courts have made it clear that the purpose of filing a criminal case under Section 489-F is not to recover outstanding dues but to penalize the wrongful act of issuing a dishonoured cheque (Arshad Mahmood v. State, 2023 MLD 992 Lahore-High-Court-Lahore). However, when the dispute between the parties appears to be primarily of a civil nature concerning the settlement of accounts, the criminal proceedings may be dismissed, and the parties are directed to settle their claims through a civil suit (Iqbal Ahmed Rajput v. State, 2022 MLD 1781 Karachi-High-Court-Sindh).

The courts are mindful of the balance between the severity of the offence and the rights of the accused, as seen in Raza Shah v. Superintendent Central Prison, Peshawar (2023 YLR 434 Peshawar-High-Court), where the discretion to make sentences run concurrently was exercised in the interest of justice.

The courts have also taken a pragmatic approach in dealing with cases where cheque dishonour may be intertwined with civil disputes. In instances where a cheque is issued as part of a commercial or business transaction, the courts have often favoured the resolution of such matters through civil remedies. The decision in Ali Sher vs State (2022 YLRN 138) is illustrative, where the prosecution failed to prove the criminal intention behind the issuance of a cheque, leading to the acquittal of the accused.

In the same citation (2022 PLD 516), the Lahore High Court emphasized that inheriting a business or estate does not transfer criminal liability for actions taken by the deceased prior to the transfer. This distinction is significant because it protects heirs from criminal prosecution for acts they did not commit, although they may still face civil liability.

Abdul Aziz vs State (2022 YLRN 151) further illustrates the principle that the mere issuance of a dishonoured cheque does not automatically lead to criminal liability. Instead, it is the evidence of dishonest intention at the time of issuance that is key. The presumption under Section 118 of the Negotiable Instruments Act, 1881, which assumes the presence of consideration and that the cheque was issued for a valid debt or liability, is rebuttable, indicating that the accused has the opportunity to disprove the presumption.

The Supreme Court, in Abdul Saboor vs State (2022 SCMR 592), discussed the parameters for granting bail under a charge of Section 489-F. Bail can be granted when the offence does not fall within the prohibitory clause of Section 497 of the Criminal Procedure Code (Cr.P.C.), and when there is a need for further inquiry into the guilt of the accused. The court in this case deemed that the accused’s continued detention was not justified given the nature and circumstances of the offence.

In Bilal Moeen Butt alias Bilal Hussain Butt vs State (2022 PCrLJ 1657), the Lahore High Court granted bail, taking into account the history of regular and smooth business transactions between the parties, which suggested an absence of dishonest intention.

Conversely, in Abdul Majeed vs State (2022 PCrLJN 22), the Karachi High Court held that if a cheque was not signed by the accused or they had no connection with it, Section 489-F could not be applied, reinforcing the notion that criminal liability under this section requires the cheque to be issued by the person who is being charged.

Liaqat Ali vs State (2022 YLR 1662) offers a cautionary tale wherein an accused’s absconsion from the legal process can adversely affect the chances of bail being granted. The court denied bail, considering the accused’s evasion of legal proceedings as an indicator of potential guilt.

Raja Abdul Hameed vs Mashooq Ali Rajpar (2022 YLRN 54) reiterates the established principle that a dishonoured cheque does not constitute an offence unless there is proof of dishonest intent for repayment of a loan or for fulfilling an obligation.

The cases collectively indicate that while Section 489-F is a criminal provision, it is not intended to be used as a mechanism for debt recovery, which is instead addressed through civil procedures, notably under Order XXXVII of the Civil Procedure Code (C.P.C.). The primary focus of Section 489-F is to penalize fraudulent conduct, not to facilitate the collection of debts, which is a matter for civil courts.

The suite of cases pertaining to Section 489-F of the Pakistan Penal Code (PPC) offers a multifaceted view of how the courts interpret the provision dealing with the dishonest issuance of cheques. A thorough analysis of these cases reveals the nuanced approach the judiciary takes towards determining criminal liability and the conditions under which bail may be granted.

Starting with the foundational principles, the Lahore High Court in Muhammad Saeed Akhtar vs Additional Sessions Judge/Justice of Peace, District Multan (2022 PLD 516) clarifies that the aim of Section 489-F is punitive, not compensatory. The law is designed to sanction individuals who, with dishonest intent, issue a cheque that is subsequently dishonoured. It is not a tool to facilitate debt recovery, which falls under the ambit of civil proceedings.

The case of Mazhar Iqbal vs State (2022 MLD 752) demonstrates the principle of due process and fair trial as enshrined in Article 10-A of the Constitution, where a considerable delay in FIR registration was a significant factor leading to the acquittal of the accused. The Islamabad High Court, upon revision, found the delay unexplained and acquitted the accused, indicating the importance of promptness in legal proceedings regarding cheque dishonouring.

In Ali Sher vs State (2022 YLRN 138), the Karachi High Court granted the accused the benefit of the doubt due to a delayed FIR, highlighting the judiciary’s consideration of procedural delays as potential indicators of mala fide intent.

Shah Zaman Ashraf vs State (2022 YLRN 207) and Muhammad Yasir Mehmood vs Syed Sibt-e-Haider Zaidi (2022 YLR 1046) underscore the relevance of the timing and circumstances of the FIR, the completion of investigation, and the need for the accused’s custody for further investigation or recovery as factors influencing bail decisions.

The Supreme Court in Shahid Aslam vs State (2022 SCMR 737) emphasizes that bail should not be used as a bargaining chip, affirming that the courts must act as neutral arbiters guided strictly by the law. The grant of bail in cases involving Section 489-F is not to be subject to agreements of compensation between the parties but should follow established legal principles.

Hamid Khan vs State (2022 MLD 31) provides guidance on the management of multiple FIRs in cheque dishonour cases, advising against the registration of subsequent FIRs for cheques from the same transaction. It instructs police officers to direct parties to the appropriate civil court for recovery matters, thereby delineating the separation between criminal liability for dishonest intent and civil liability for debt recovery.

In terms of bail under Section 489-F, the cases collectively suggest that bail may be granted where the offence does not fall within the prohibitory clause of Section 497 of the Criminal Procedure Code (Cr.P.C.), where there is a need for further inquiry into the guilt of the accused, and where there is no evidence of mala fide intent or flight risk. The case of Bilal Moeen Butt alias Bilal Hussain Butt vs State (2022 PCrLJ 1657) is illustrative, where a history of regular business dealings and the absence of clear evidence of dishonest intent at the time of cheque issuance influenced the decision to grant bail.

Several connected provisions of the PPC and the Criminal Procedure Code (Cr.P.C) often come into play in such cases. For instance, Section 420 (cheating), Section 468 (forgery for the purpose of cheating), and Section 406 (criminal breach of trust) of the PPC have been invoked alongside Section 489-F in the cases presented. These provisions complement the main charge under Section 489-F, allowing the courts to address the multifaceted nature of financial fraud and dishonesty.

The decisions also reflect on the revisional and appellate jurisdiction of the High Courts under Sections 435 and 439 of the Cr.P.C, and the parameters for the grant of bail under Sections 497, 498, and 499 of the Cr.P.C. For example, in the case of Muhammad Arif v. Tasneem Fatima (2022 PCrLJN 13 Islamabad), the court acquitted the accused due to a lack of evidence of forgery and the absence of jurisdiction of the Federal Investigating Agency (FIA) since the accused was not a government employee.

In several instances, these cases also reveal concurrent civil actions. For example, the cases often mention that alongside the criminal proceedings, the complainants had also initiated civil suits for the recovery of the amounts due under the dishonoured cheques, as seen in the case of Manzoor Hussain v. State (2021 YLRN 149 Islamabad). This indicates that the issuance of a dishonoured cheque can give rise to both civil and criminal consequences.

Bail in charges under Section 489-F is granted based on several factors, including the nature of the allegations, the amount involved, the accused’s criminal history, and the probability of the accused repeating the offence. Bail is also influenced by whether the accused is likely to abscond or tamper with the evidence. The courts have been seen to grant bail in cases where the disputes appeared to be of a civil nature, where the accused showed an honest intention at the time of issuing the cheque, or where the prosecution failed to establish a prima facie case of dishonesty. Conversely, bail has been denied in situations where the accused had a history of similar offences, as in the case of Muhammad Imran v. State (2021 PLD 903 Supreme-Court), or where there was a substantial delay in the prosecution of the case due to the accused absconding.

The essence of Section 489-F PPC lies in the act of dishonesty linked with the issuance of a cheque. For a conviction, it is paramount that the cheque was issued with a dishonest intent, typically for repayment of a loan or fulfilment of an obligation (2021 YLR 324 KARACHI-HIGH-COURT-SINDH). A mere dishonouring of a cheque does not automatically lead to criminal liability unless the dishonest intention is established (2021 MLD 1969 KARACHI-HIGH-COURT-SINDH).

Connected provisions include the Criminal Procedure Code (Cr.P.C), particularly sections relating to the process of bail (Section 497, 498 Cr.P.C) and the powers of the Justice of Peace under sections 22-A and 22-B to direct registration of a criminal case (2021 PLD 903 SUPREME-COURT; 2021 PCrLJ 1527 LAHORE-HIGH-COURT-LAHORE). The cases also reference the Summary Procedure under Order XXXVII of the Civil Procedure Code (C.P.C), which applies to cases involving negotiable instruments, highlighting that criminal proceedings should not be used as a substitute for civil remedies (2021 MLD 1597 LAHORE-HIGH-COURT-LAHORE).

The judicial trend in these cases demonstrates a clear distinction between criminal action and concurrent civil liabilities. It is evident that while criminal proceedings can be initiated under Section 489-F PPC, civil actions such as recovery suits are also concurrently maintainable. The court in several instances has pointed out that the criminal justice system should not be used as a means of recovering debts, which can be settled through civil law procedures (2021 YLR 114 KARACHI-HIGH-COURT-SINDH).

Regarding the grant of bail under a charge of Section 489-F PPC, several factors are considered. Bail can be granted if the accused demonstrates that the cheque was not issued as part of a financial obligation or in repayment of a loan (2021 MLD 1597 LAHORE-HIGH-COURT-LAHORE). However, bail is typically denied if there’s a pattern of the accused repeatedly issuing dishonoured cheques, indicating a propensity towards committing the offence, or if the accused is a flight risk (2021 PLD 903 SUPREME-COURT). Moreover, bail may be refused if there are reasonable grounds to believe the accused has committed the offence, and there’s sufficient evidence linking them to the act (2021 YLR 367 KARACHI-HIGH-COURT-SINDH).

There must be an element of dishonesty or fraudulent intent (2021 PCrLJ 586 QUETTA-HIGH-COURT-BALOCHISTAN). This is crucial because a dishonoured cheque can also be a civil matter, where the remedy lies in recovery through civil courts.

Criminal vs Civil Remedies: The cases demonstrate that criminal proceedings under Section 489-F PPC are not a tool for debt recovery, which is the domain of civil law. For instance, even if a defendant is acquitted in a criminal case on the ground of lack of dishonesty, this does not absolve them of the civil liability to pay the amount on the cheque (2021 MLD 1969 KARACHI-HIGH-COURT-SINDH). Conversely, the initiation of a civil suit does not preclude criminal proceedings if the elements of a crime under Section 489-F PPC are met (2021 PCrLJ 636 LAHORE-HIGH-COURT-LAHORE).

Jurisdictional Issues Jurisdictional aspects have been a matter of consideration where the courts have ruled that the location where the cheque was dishonoured can determine the venue for criminal proceedings. For instance, in the case involving TOTAL PARCO PAKISTAN LIMITED, the court opined that the trial can be conducted either where the cheque was deposited or where it was dishonoured, focusing on the location of the drawer’s bank account (2021 YLR 1436 ISLAMABAD).

Grant of Bail under Section 489-F: Bail under charges of Section 489-F PPC is contingent upon various factors, including the severity of the offence, the accused’s criminal history, likelihood of recurrence, and procedural delays. For example, in cases where the accused has been behind bars for a substantial portion of the potential sentence and the trial has been delayed due to factors like the non-appearance of the complainant or witnesses, bail has been granted (2021 SCMR 2090 SUPREME-COURT; 2021 SCMR 2092 SUPREME-COURT). Additionally, bail can be granted where the investigation is complete, and the accused’s presence is not deemed necessary for trial proceedings (2021 PCrLJ 914 LAHORE-HIGH-COURT-LAHORE).

The Essence of Dishonesty: The requirement of proving dishonesty as an ingredient of the offence under Section 489-F PPC is consistently emphasised. Without establishing this element, the charge cannot hold, leading to acquittal. This was clearly elucidated in the case of ANWAAR-UL-HAQ, where the lack of evidence regarding dishonest intent resulted in the acquittal of the accused (2021 PCrLJ 669 ISLAMABAD).

The case of TOTAL PARCO PAKISTAN LIMITED (2021 YLR 1436 ISLAMABAD) illustrates jurisdictional issues in criminal proceedings, where the court emphasized the importance of the location of the drawer’s bank account in determining where a case can be filed. The decision provided an additional option for the payee to register the case where their account existed, ensuring flexibility and convenience in initiating legal action.

In ZAHID AHMED (2021 MLD 1969 KARACHI-HIGH-COURT-SINDH), the court distinguished between the material ingredient of “dishonesty” for the criminal case and the civil liability to pay the cheque amount. An acquittal on criminal charges does not negate the obligation to settle the cheque amount, indicating that civil actions can proceed concurrently with, or independently of, criminal actions.

Bail in cases under Section 489-F PPC is discretionary, based on the specific circumstances of each case. The Supreme Court in MUHAMMAD IRFAN SHABBIR (2021 SCMR 2090 SUPREME-COURT) and MUHAMMAD NASIR SHAFIQUE (2021 SCMR 2092 SUPREME-COURT) granted bail due to delays in the trial process and the time already served by the accused, which was a substantial part of the potential sentence.

The ANWAAR-UL-HAQ case (2021 PCrLJ 669 ISLAMABAD) highlights the importance of appreciating evidence and giving the benefit of the doubt when the prosecution fails to prove dishonest intent. The case also touches upon the elements of criminal breach of trust under Sections 406 and 34 PPC, which were not made out against the accused due to insufficient evidence.

MUHAMMAD ISHAQ (2021 PCrLJ 636 LAHORE-HIGH-COURT-LAHORE) reminds us that filing a civil suit does not automatically entitle one to extraordinary relief such as pre-arrest bail in criminal proceedings. The court recalled the ad-interim pre-arrest bail when the accused’s plea was based solely on the filing of a civil suit.

In ADNAN SHEHZAD (2021 PCrLJ 914 LAHORE-HIGH-COURT-LAHORE), the grant of post-arrest bail was allowed after the completion of the investigation. This case reiterates that Section 489-F is not intended as a recovery tool for business transactions, which should be addressed through civil remedies.

The QUETTA-HIGH-COURT-BALOCHISTAN cases (2021 PCrLJ 586) underscore that the mere issuance and dishonour of a cheque do not constitute an offence under Section 489-F PPC unless the element of dishonesty is established. This principle is crucial in differentiating between criminal actions and civil defaults.

 In the case of TOTAL PARCO PAKISTAN LIMITED v. JUSTICE OF PEACE/ADDITIONAL SESSIONS JUDGE (WEST), ISLAMABAD (2021 YLR 1436), the Islamabad High Court elucidated the significance of the place of maintaining the drawer’s account and not just where the cheque was presented or dishonoured. This case expanded the jurisdiction for initiating criminal proceedings to either the place where the cheque was deposited or where it was dishonoured, which is pivotal for determining the venue of trial.

In matters of bail under Section 489-F, the courts have set precedents that bail can be granted when the accused has already served a substantial part of the possible sentence, as seen in MUHAMMAD IRFAN SHABBIR v. State (2021 SCMR 2090) and MUHAMMAD NASIR SHAFIQUE v. State (2021 SCMR 2092), or when the accused is not required for investigation purposes, and the case does not fall within the prohibitory clause of Section 497 of the Criminal Procedure Code, as in ADNAN SHEHZAD v. State (2021 PCrLJ 914).

It’s notable that while Section 489-F deals with criminal liability, it does not exclude concurrent civil liability. The courts have maintained a distinction between criminal and civil remedies, highlighting that Section 489-F should not be used merely as a tool for debt recovery, which is a civil matter. This distinction was evident in ZAHID AHMED v. SOMIYO (2021 MLD 1969), where the Karachi High Court observed that acquittal in a criminal case does not absolve the defendant of the liability to pay the amount shown in the dishonoured cheque, which can be pursued through civil channels.

Furthermore, the courts have been cautious not to permit the misuse of Section 489-F as a means of pressuring or harassing individuals in business disputes. For instance, in the case of SAJID IRTAZA v. ADDITIONAL SESSIONS JUDGE/JUSTICE OF PEACE, LAHORE (2021 PCrLJ 1071), the Lahore High Court highlighted the foundational elements required to constitute the offence under Section 489-F, emphasizing the necessity of a dishonest intention at the time of issuance, and the cheque being towards repayment of a loan or fulfillment of an obligation.

The Supreme Court, in SHAHID SULTAN DURRANI v. State (2021 SCMR 827), even went so far as to grant bail conditional upon the payment of the disputed amount within a stipulated time, thus blending criminal proceedings with a restitution-based approach which is usually a feature of civil litigation.

In the context of criminal action against dishonoured cheques under Section 489-F, it is clear that the mere issuance of a cheque that is subsequently dishonoured does not automatically constitute an offence. The prosecution must establish, with sufficient evidence, that the cheque was issued with a dishonest intention, typically for the repayment of a loan or to discharge an obligation (2021 PCrLJ 586, Quetta-High-Court-Balochistan; 2021 YLR 324, Karachi-High-Court-Sindh). The courts have consistently held that dishonest intent is a critical element of the offence under Section 489-F.

Connected provisions within the Pakistan Penal Code (XLV of 1860) and the Criminal Procedure Code (V of 1898) often cited in these cases include Articles 75, 76, and 162 of the Qanun-e-Shahadat (10 of 1984), Section 439 of the Criminal Procedure Code, and various other sections pertaining to evidence and bail (2021 PCrLJ 145, Islamabad; 2021 SCMR 822, Supreme-Court).

The cases also highlight the significance of primary evidence, such as the original cheque and dishonour slip, for the prosecution’s case. Secondary evidence is not readily accepted unless the conditions for its admission are met, as was emphasized in the case where the prosecution relied on photocopies of the cheque and dishonour slip without presenting the originals (2021 PCrLJ 145, Islamabad).

Regarding bail in charges under Section 489-F, it appears that bail may be granted when the offence does not fall within the prohibitory clause of Section 497 of the Criminal Procedure Code, and where the maximum punishment is three years or less. Bail decisions are also influenced by factors such as the length of time the accused has been arrested, the nature of the evidence, and the potential misuse of bail (2021 SCMR 822, Supreme-Court; 2021 YLR 367, Karachi-High-Court-Sindh).

The rulings suggest that concurrent civil actions may also be relevant, as the criminal provision under Section 489-F is not intended to be used as a tool for the recovery of funds in business dealings, for which civil remedies are available. This is seen in cases where the High Courts have emphasized that civil law provides remedies for the recovery of debts and that the misuse of the criminal justice system for debt recovery is not appropriate (2021 PCrLJ 914, Lahore-High-Court-Lahore).

The High Courts have been seen to acquit accused persons when the evidence of dishonest intent is insufficient or when procedural aspects, such as the timely production of original evidence, have not been adhered to (2021 YLR 324, Karachi-High-Court-Sindh; 2021 PCrLJ 586, Quetta-High-Court-Balochistan). Moreover, the Supreme Court has also demonstrated leniency when the accused shows a willingness to settle the underlying financial disputes, as seen in the case where bail was granted conditional upon the payment of the disputed amount within a stipulated time (2021 SCMR 827, Supreme-Court).

Understanding Section 489-F PPC

Section 489-F of the PPC criminalises the act of issuing a cheque dishonestly with the knowledge that there are insufficient funds or that it will be dishonoured for any reason. A critical component, as elucidated in various judgements, is the establishment of dishonest intent at the time the cheque was issued (2021 SCMR 822, Supreme-Court; 2020 PCrLJ 1657, Karachi-High-Court-Sindh).

Connected Legal Provisions

The cases invoke related provisions from the PPC and the Criminal Procedure Code (CrPC). For instance, Section 406 PPC, concerning criminal breach of trust, is often read in conjunction with Section 489-F when the facts suggest misappropriation or conversion of property (2021 PCrLJ 1549, Peshawar-High-Court). Additionally, Sections 497 and 498 CrPC, which deal with bail provisions, are frequently cited to determine whether an accused under Section 489-F should be granted bail (2021 SCMR 822, Supreme-Court).

Evidence and Procedure

Evidentiary matters in such cases hinge on the production of primary evidence, i.e., the original cheque and related bank documents. The courts have underscored the inadmissibility of secondary evidence unless justified under exceptional circumstances (2021 PCrLJ 145, Islamabad). The procedural requirement also extends to the timely initiation of legal action, as delays in lodging FIRs are often viewed with suspicion and can be detrimental to the prosecution’s case (2020 YLRN 144, Karachi-High-Court-Sindh).

Concurrent Civil Actions

Several cases imply that while Section 489-F addresses the criminal aspect of a dishonoured cheque, there is an underlying civil dimension often related to debt recovery or fulfilment of financial obligations. The courts have made it clear that Section 489-F cannot be used as a means for debt collection, which is typically addressed through civil law remedies (2020 PCrLJ 1445, Lahore-High-Court-Lahore).

Criteria for Granting Bail

Bail under Section 489-F can be granted based on several factors. These include the absence of a criminal history, completion of the investigation, and circumstances suggesting that the accused’s involvement may be grounded in mala fide intentions (2021 PCrLJ 1549, Peshawar-High-Court). Furthermore, if an accused has already been granted bail in similar cases, or if there is a settlement or compromise between the parties, the court may also favour the grant of bail (2021 SCMR 822, Supreme-Court; 2020 MLD 1873, Lahore-High-Court-Lahore).

Conclusions on cases involving 489-F 

(1) The adjudication of cases under Section 489-F PPC reflects a delicate balance between safeguarding the interests of the complainant and ensuring that criminal law is not misused as a tool for coercion in civil disputes. The jurisprudence underscores the necessity of establishing dishonest intent and disallows the criminal justice system from becoming a means of debt recovery. Bail considerations in such cases are nuanced and fact-specific, where judicial discretion plays a pivotal role in assessing each case’s merits.

(2) Through these cases, the Pakistani judiciary has made significant strides in delineating the contours of Section 489-F PPC, ensuring that while offenders are brought to justice, the rights of the accused are not unduly compromised. The emphasis on due process and the requirement of honest intent as an integral part of the offence under Section 489-F serve as the cornerstone for the adjudication of these matters.

(3) These cases collectively demonstrate that criminal action against dishonoured cheques in Pakistan requires a demonstration of dishonest intent, and even in the absence of criminal liability, civil liability remains. Bail may be granted on a case-by-case basis, considering the duration of detention, delays in trial, and evidence of dishonesty or lack thereof. The connected provisions from the Criminal Procedure Code (Cr.P.C.) include Sections 22-A and 22-B, which pertain to the powers of the Justice of Peace and the procedure for filing a criminal complaint, and Section 497 regarding bail provisions.The concurrent civil actions depicted in these cases revolve mainly around the recovery of the cheque amount, which can proceed through civil courts regardless of the outcome of the criminal trial. The criminal court’s focus is on the intent behind the cheque issuance, while the civil court’s concern is with the recovery of dues.

(4) In Pakistan, the issuance of a dishonoured cheque can trigger both criminal and civil liabilities. Section 489-F of the Pakistan Penal Code (PPC) addresses the criminal aspect, outlining the offence of dishonestly issuing a cheque. However, as seen in the cases cited, criminal proceedings under this section are not straightforward. They require a nuanced understanding of the intentions behind the issuance of the cheque, the procedural aspects of trial, and the balance between criminal punishment and civil remedies.

(5) The dishonour of cheques in Pakistan, particularly under Section 489-F of the Pakistan Penal Code (PPC), has been a significant cause for legal proceedings, both in criminal and civil domains. The aforementioned citations reflect the judiciary’s approach in dealing with cases where cheques have been dishonoured. Section 489-F of the PPC is designed to penalise individuals who dishonestly issue a cheque that is not honoured upon presentation due to insufficient funds or the account being closed.

(6) The criminal actions under Section 489-F are often connected with other provisions of the PPC, such as Section 420 (Cheating and dishonestly inducing delivery of property), Section 468 (Forgery for purpose of cheating), and Section 406 (Punishment for criminal breach of trust). The Criminal Procedure Code (Cr.P.C) also plays a crucial role, particularly Sections 435 and 439, which deal with the High Court’s powers of revision and alteration of sentences, respectively. These sections are critical when reviewing the legality, propriety, or correctness of the lower courts’ findings.

(7) The cases cited illustrate that the courts are stringent in granting bail for offences under Section 489-F PPC. Bail is typically refused when there is prima facie evidence of dishonesty, a clear intention to defraud, or where the accused has absconded or delayed joining the investigation. For example, in the case of Liaquat Ali vs State, the accused’s absconsion for about eight years and failure to establish innocence under Section 497(2) Cr.P.C led to bail refusal. Conversely, bail may be granted if the accused presents a plausible argument that the case is of a civil nature, such as a breach of contract, or if there is a substantial delay in FIR registration without a plausible explanation, which could indicate that the criminal justice process may not be the appropriate forum for resolution, as seen in the case of Mazhar Iqbal vs State.

(8) The courts have also shown a willingness to consider the reduction of surety amounts based on the accused’s means and to ensure fairness in the justice process. For instance, in Nasir Shah vs State, the High Court reduced the surety amount to ensure the accused’s presence in court rather than penalise them.

(9) It is evident from the citations that while Section 489-F is a criminal provision, there is an acknowledgment of concurrent civil actions. For example, in Arshad Mahmood vs State, it was held that filing a case under Section 489-F PPC is not a means of recovering outstanding dues and that civil proceedings under Order XXXVII of the Civil Procedure Code (C.P.C) offer various remedies for the recovery of money. Similarly, the case of Muhammad Yaqoob vs State suggested that matters involving business transactions might be more suited for civil litigation, especially where the dispute appears to be a breach of contract.

(10) Section 489-F of the PPC criminalises the act of dishonestly issuing a cheque without sufficient funds or the closure of the account it is drawn against. This provision serves not as a tool for debt recovery but as a punitive measure against the act of deceit involved in issuing a cheque with knowledge of its probable dishonour. The cases at hand indicate that mere dishonour of a cheque is not sufficient to constitute a criminal offence; rather, it is the dishonest intention behind issuing such a cheque that is pivotal for the application of Section 489-F.

(11) The element of dishonesty is a pre-requisite for criminal action under this section. For instance, in Iqbal Ahmed vs Syed Danish Hussain Zaidi (2022 YLRN 202), the Karachi High Court underscored that a cheque’s dishonour alone does not imply an offence unless it was issued with the intent to repay a loan or discharge an obligation dishonestly. Similarly, in Shah Zaman Ashraf vs State (2022 YLRN 207), the court reiterated that the object of Section 489-F is not to aid in the recovery of the cheque amount but to penalise the fraudulent act, necessitating proof of dishonest intent.

(12) Furthermore, the cases point out the concurrent civil actions that may arise from such incidents. For instance, in Iqbal Ahmed Rajput vs State (2022 MLD 1781), the court noted that disputes over cheque amounts could be of a civil nature, more suited for account settlement in civil courts. This demonstrates a nuanced understanding that not all cheque dishonours may fall under the ambit of criminal proceedings, especially when the dispute is essentially a contractual or civil matter.

Regarding bail in charges under Section 489-F, it is granted based on several factors, including the nature of evidence, the conduct of the accused, and the likelihood of the accused’s presence at trial. For example, in Shahid Aslam vs State (2022 SCMR 737), the Supreme Court granted bail to the accused, highlighting that the continued custody would not serve any useful purpose before final adjudication. This reflects a judicial inclination to balance the accused’s liberties with the legal process’s integrity, ensuring that bail is not categorically denied but considered on a case-by-case basis.

(13) From many court trulings, we see a refusal of bail in circumstances where the accused had a role of trust within an organisation, indicating the courts’ unwillingness to grant leniency in cases involving breach of trust and potential financial harm to institutions.

(14) Concurrently, these cases also illustrate that while criminal proceedings under Section 489-F PPC are ongoing, civil actions can be, and often are, pursued. The civil remedies, particularly under Order XXXVII CPC, allow the complainant to seek recovery of the cheque amount through a summary procedure, providing a separate avenue for restitution.

A review of cases regarding Civil Liability for Dishonoured Cheques 

In the case of Mian Abdul Ghaffar v. Muhammad Anwar Saeed (2023 PLD 275 Lahore-High-Court-Lahore), the court exercised its inherent powers under Section 151 of the Civil Procedure Code (CPC) to restore a suit on the basis of a dishonoured cheque, demonstrating the readiness of the judiciary to protect the rights of the aggrieved party without being hindered by mere technicalities. The inherent powers are a crucial tool in administering justice, ensuring that a litigant is not ousted from litigation due to an order obtained by fraud.

Atif Shabbir v. Rizwan Riaz (2023 CLC 100 Karachi-High-Court-Sindh) brings forth the principle that civil courts are reluctant to restrain criminal proceedings, especially when multiple cheque fraud and criminal proceedings are involved. The court emphasized that the issuance of an injunction would be inappropriate when it could potentially influence pending or future proceedings, thus maintaining the autonomy and seriousness of criminal proceedings against dishonoured cheques.

The case of Asad Javed v. Ahmed Shah (2022 CLD 332 Quetta-High-Court-Balochistan) accentuates the presumption under Section 118 of the Negotiable Instruments Act, 1881, which favours the holder of a negotiable instrument. This presumption places the burden on the drawer to disprove the issuance of the cheque or payment of consideration. The court dismissed the appeal and upheld the trial court’s decree for recovery of the amount, signifying the strength of this presumption in civil suits.

In Muhammad Afzal v. Muhammad Aslam (2022 CLD 1318 Lahore-High-Court-Lahore), the High Court reversed the trial court’s decree on the grounds that the plaintiff failed to prove the transaction’s legitimacy. This case exemplifies that while the presumption under Section 118 is strong, it is not insurmountable, and the courts require credible evidence to uphold a claim based on a dishonoured cheque.

Manzoor Ahmad Sajjad v. Akhtar Hussain (2022 CLC 856 Lahore-High-Court-Lahore) discusses the procedure for summoning witnesses in a suit for recovery based on a dishonoured cheque. The court allowed the plaintiff to summon witnesses whose names were mentioned in the plaint, affirming that procedural law should aid in the dispensation of justice, not hinder it.

The case of Mazhar Iqbal v. State (2022 MLD 752 Islamabad) shows the criminal side of dishonoured cheques, where the High Court acquitted the accused due to a lack of evidence beyond reasonable doubt and an unexplained delay in filing the FIR. This case indicates that while the courts are stringent in civil liability, criminal prosecution requires higher standards of proof.

Shahzad Rafique v. Najaf Iqbal (2021 CLD 396 Lahore-High-Court-Lahore) and the subsequent appeal (2021 CLC 569 Lahore-High-Court-Lahore) highlight the importance of the presumption under Section 118 and the need for the defendant to proactively seek evidence, such as a handwriting expert’s testimony, to rebut this presumption.

In Mashooq Ali Rajpar v. Raja Abdul Hameed (2021 CLD 783 Karachi-High-Court-Sindh) and Najaf Iqbal v. Shahzad Rafique (2020 CLD 1427 Supreme-Court), we see the courts’ approach in dealing with the technicalities of limitation and the importance of the defendant’s proactive defence against the presumptions under Section 118 of the Negotiable Instruments Act.

The chances of success in civil suits based on dishonoured cheques largely depend on the presumption of consideration and the proper issuance of the cheque under Section 118 of the Negotiable Instruments Act. This presumption is rebuttable, but the onus lies heavily on the defendant to present a convincing defence. The effectiveness of the civil suit is thus contingent upon the ability of the defendant to prove that the cheque was not issued for a valid consideration or that there was some other valid defence, such as theft or fraud.

Criminal Action Against Dishonoured Cheques: Under Pakistani law, particularly Section 489-F of the Pakistan Penal Code, issuing a dishonoured cheque can lead to criminal prosecution. This offence pertains to the issuance of a cheque dishonestly with knowledge that there are insufficient funds or that it will not be honoured upon presentation. 

The cases, such as 2016 PCrLJ 1640 PESHAWAR-HIGH-COURT, underscore that criminal proceedings in the context of a dishonoured cheque are maintainable even if civil remedies are being pursued, given the distinct nature and consequences of each forum (2016 PCrLJ 1640).

In 2014 CLD 858 LAHORE-HIGH-COURT-LAHORE, the Lahore High Court highlighted the jurisdictional aspect, indicating that the Banking Court has the authority under the Financial Institutions (Recovery of Finances) Ordinance, 2001, to deal with matters concerning the recovery of finances and dishonoured cheques issued in that context (2014 CLD 858).

Civil Procedure Code and Dishonoured Cheques: The civil suits related to dishonoured cheques often involve Order XXXVII of the Civil Procedure Code (V of 1908), which allows for a summary procedure in cases involving negotiable instruments, as seen in 2018 CLD 123 KARACHI-HIGH-COURT-SINDH. This order facilitates a quicker resolution compared to the ordinary suit process, given that the instrument itself, such as a cheque, creates a presumption of the debt or liability.

The success of civil suits concerning dishonoured cheques typically hinges on the presumption of liability attached to the instrument under Section 118 of the Negotiable Instruments Act, 1881. The plaintiff benefits from the presumption that the cheque was issued for consideration and that the burden of proof lies with the defendant to rebut this presumption (2020 CLD 265 LAHORE-HIGH-COURT-LAHORE).

In 2017 CLD 1593 LAHORE-HIGH-COURT-LAHORE, the court reiterated that the holder of the cheque is deemed a holder in due course unless it can be established that the instrument was obtained through fraud or unlawful means (2017 CLD 1593).

Furthermore, cases like 2016 CLD 555 KARACHI-HIGH-COURT-SINDH affirm that the failure of defendants to fulfil conditions imposed by the court, such as providing surety, strengthens the plaintiff’s position (2016 CLD 555).

The courts also recognize the dichotomy between the issuance of a cheque as part of a commercial transaction and its dishonour as a result of financial incapacity or dishonesty. For instance, in 2016 MLD 278 KARACHI-HIGH-COURT-SINDH, the High Court found that the existence of a civil agreement does not preclude the initiation of criminal proceedings for a dishonoured cheque, stressing the need for clear evidence of dishonest intent at the time of issuance (2016 MLD 278).

In the case of 2017 CLCN 55 LAHORE-HIGH-COURT-LAHORE, it was held that a consent decree in a civil suit cannot be assailed under Section 12(2) of the Civil Procedure Code when the defendant has not availed of the right to appeal. This further cements the position that once a decree is consented to, challenging it becomes arduous (2017 CLCN 55).

Criminal Action Against Dishonoured Cheques

The criminal action against dishonoured cheques is predominantly governed by Section 489-F of the Pakistan Penal Code (PPC), which penalizes dishonestly issuing a cheque. The criminal intent or mens rea is a critical element under this provision. For instance, in Qazi Faisal Wajid v. Munir Ullah Khan (2013 PCrLJ 400 Peshawar-High-Court), the Peshawar High Court upheld the criminality of issuing a cheque as a guarantee when there were insufficient funds, reinforcing that the issuance of a cheque under such circumstances falls within the ambit of Section 489-F PPC. Similarly, in Muhammad Khan v. Magistrate Section 30, Pindi Gheb, District Attock (2009 PLD 401 Lahore-High-Court-Lahore), the court underscored that Section 489-F PPC is not merely for recovery of the cheque amount but to penalize the act of dishonest issuance.

Civil Procedure Code Provisions in Civil Suits for Dishonoured Cheques

The civil aspect is governed by the Civil Procedure Code (CPC), particularly Order XXXVII, which pertains to the summary procedure applicable to negotiable instruments. This order allows for a swift remedy, bypassing the normal procedural rigmarole. As seen in Pak Petrochemical Industries Pvt. Ltd. v. Syed Hamid Ali (2014 CLD 519 Karachi-High-Court-Sindh), the presumption attached to a negotiable instrument is statutory and mandates that any party wishing to rebut the presumption must provide cogent evidence.

Chances of Success in Civil Suits

The chances of success in civil suits over dishonoured cheques depend on several factors:

• Presumption of Liability: Under Section 118 of the Negotiable Instruments Act 1881, there is a presumption that a cheque is issued for consideration and the burden is on the defendant to prove otherwise. As highlighted in Mst. Nusrat Mufti v. Muhammad Hanif (2012 CLD 2027 Karachi-High-Court-Sindh), the failure of the defendant to obtain leave to defend the suit leads to an admission of the plaintiff’s claim, significantly increasing the plaintiff’s chances of success.
• Evidence of Dishonesty: For a civil suit to be successful, there must be clear evidence that the cheque was issued dishonestly. This is illustrated in Muhammad Asif v. Muhammad Idrees (2013 MLD 1395 Lahore-High-Court-Lahore), where the court admitted secondary evidence of a dishonoured cheque, thus facilitating the plaintiff’s claim.
• Timeliness: The timely filing of the suit is critical, as seen in Mst. Nusrat Mufti v. Muhammad Hanif (2012 CLD 2027 Karachi-High-Court-Sindh), where the application for leave to defend was considered time-barred without a condonation application under Section 5 of the Limitation Act 1908.
• Mortgage and Other Securities: The presence of additional securities, such as a mortgage, as in Saeed Ahmad Mughal v. State (2013 PCrLJ 1261 Lahore-High-Court-Lahore), might affect the success of the civil suit, as it suggests that the plaintiff has other means of recovering the debt.
• Jurisdiction and Proper Forum: Ensuring that the suit is filed in the correct forum is crucial. For example, banking disputes might be more appropriately addressed in a Banking Court, as suggested in the case of Saeed Ahmad Mughal v. State (2013 PCrLJ 1261 Lahore-High-Court-Lahore).

Legal Status and Procedural Aspects: The case of Najma Sugar Mills Ltd. v. Mega Trading Company (2009 CLC 209 Islamabad) underscores the necessity of compliance with statutory requirements, such as the registration of a partnership firm under the Partnership Act, 1932. The court highlighted that the failure to register a partnership firm, as required by Section 69(2) of the Partnership Act, directly impacts the legal standing of the firm to sue or be sued, leading to the rejection of the plaint under Order VII, Rule 11, and Order XXXVII of the CPC.

Arbitration Clauses and Dishonoured Cheques: The cases involving Shell Pakistan Ltd. showcase the courts’ approach towards arbitration clauses in the context of dishonoured cheques. In Shell Pakistan Ltd. v. Aero Asia International (Pvt.) Ltd. (2008 PLD 429 Karachi-High-Court-Sindh and 2008 CLD 996 Karachi-High-Court-Sindh), the court determined that a dishonoured cheque gives rise to an independent cause of action that is not necessarily related to the underlying contract and its arbitration clause. This means that even when a contract contains an arbitration clause, the party may pursue recovery through the courts for dishonoured cheques under Order XXXVII of the CPC, which provides a summary procedure for certain types of suits including those based on negotiable instruments.

Presumptions and Defences: The cases also highlight the presumption under Sections 118(a), 79, and 80 of the Negotiable Instruments Act, 1881, that a cheque is issued against consideration, which shifts the burden of proof to the defendant to rebut this presumption (2008 CLD 996 Karachi-High-Court-Sindh). This presumption plays a pivotal role in the success of such civil suits, as it is the defendant’s responsibility to present evidence to the contrary.

Success Rates of Civil Suits: The success of civil suits for dishonoured cheques is significantly based on the plaintiff’s ability to establish the issuance of the cheque, the dishonour, and the failure of the defendant to make good on the amount. In Syed Aijaz Hussain v. Syed Abdul Azeem (2008 CLD 51 Karachi-High-Court-Sindh), the court provided a decree in favour of the plaintiff due to the defendant’s non-appearance and failure to rebut the presumption of consideration.

Mandatory Deposit and Its Effects: In the cases involving Afzal Maqsood Butt (2005 PLD 470 Supreme-Court and 2005 CLD 967 Supreme-Court), the Supreme Court elaborated on the consequences of failing to deposit the sale price after a property auction. It was held that non-compliance with the mandatory deposit requirements as per Order XXI, Rules 84 and 85 of the CPC, renders the sale and its subsequent confirmation invalid, necessitating a resale of the property.

Jurisdiction and Bank Liens: In Messrs Qasim & Co. v. Messrs Bolan Bank Limited (2005 CLD 723 Quetta-High-Court-Balochistan), the court addressed the jurisdiction of Banking Courts and clarified that certain transactions do not fall under the ‘loan’ or ‘finance’ categories, hence Banking Courts lack jurisdiction. Additionally, it was determined that a bank does not have a lien over funds in an account unless specifically authorized by the account holder or by law.

Analysis of Specific Cases

• EFU General Insurance Ltd. v. Messrs Security and Management Services (Pvt.) Ltd. [2002 CLD 107 Karachi-High-Court-Sindh]: The court held that the plaintiff is not obligated to re-present dishonoured cheques or immediately notify the defendant, particularly if the defendant’s intention not to pay is evident.
• Dabir-Ur-Rehman v. Dr. Syed Baqur Askaary [2002 CLC 899 Karachi-High-Court-Sindh]: The court underscored the importance of considering the question of limitation, stating that the absence of an order granting leave to defend does not override the effect of limitation.
• Nasir Ahmad v. Pakland Cement Limited [2001 CLC 1156 Karachi-High-Court-Sindh]: The court granted leave to defend upon the defendant furnishing security for the amount mentioned on the dishonoured cheques, indicating the court’s discretion in such matters.
• Tanco Craft Limited v. Haksons International [2000 MLD 1093 Karachi-High-Court-Sindh]: The court decreed the suit based on the cheques that were within the limitation period, demonstrating the effect of the statute of limitations on the adjudication of such suits.
• Pakistan Molasses Company v. Ahmed Investment (Pvt.) Limited [1999 CLC 1920 Karachi-High-Court-Sindh]: The court denied unconditional leave to defend when the defendant failed to present a plausible or arguable case.
• Pioneer Cables Limited v. Saadi Cement Limited [1999 CLC 1841 Karachi-High-Court-Sindh]: The existence of an arbitration agreement influenced the court’s decision, showing the interplay between arbitration and summary proceedings under the CPC.
• Ramzan Ali v. Javed Industries [1999 CLC 1294 Karachi-High-Court-Sindh]: This case highlighted that not all financial transactions fall under the ambit of the Banking Companies (Recovery of Loans, Advances, Credits, and Finances) Ordinance, and that suits based on negotiable instruments can proceed under the summary chapter of the CPC.
• Karachi Bonded Stores Limited v. Trustees of the Port of Karachi [1999 MLD 3214 Karachi-High-Court-Sindh]: Here, the presumption that a cheque is issued for consideration stood unchallenged, leading to a refusal to grant leave to defend.
• Faiz-Ur-Rehman v. Ghulam Ahmed [1998 MLD 1291 Lahore-High-Court-Lahore]: The court exercised its discretion in requiring a bank guarantee, which shows the court’s authority to impose terms for granting leave to defend based on the merits of the case.
• Skyline Travels (Pvt.) Limited v. Fly World Travels [1997 CLC 766 Karachi-High-Court-Sindh]: The defendant was granted leave to defend as they raised substantial factual and legal pleas, which needed to be resolved through evidence, illustrating that a credible defense can alter the course of summary proceedings.

• M.Z. Corporation, Karachi v. Sky Line Printing Press [1993 MLD 1764 Karachi-High-Court-Sindh]: The defendant’s failure to establish a plausible defence led to the dismissal of their application for leave to defend, resulting in a decree for the plaintiff.
• Tahir Mehmood Shaikh v. Prism Communication Ltd. [1993 MLD 637 Karachi-High-Court-Sindh]: The issuance of a dishonoured cheque provided a fresh cause of action, rendering the principle of res judicata inapplicable.
• Bashir Ahmad v. Muhammad Mansha [1992 MLD 1423 Lahore-High-Court-Lahore]: The court’s discretionary power to amend the plaint to include the dishonoured cheque in the ordinary jurisdiction was upheld.
• Pak Towels v. Style Industries (Pvt.) Ltd. [1992 CLC 1016 Karachi-High-Court-Sind]: The absence of a leave to defend application by the defendant led to a decree in favour of the plaintiff.
• Haji v. Jaffar [1989 MLD 2779 Karachi-High-Court-Sind]: The case was remanded to consider whether the plaintiff could sue on the dishonoured cheque or the original consideration.
• Municipal Corporation, Faisalabad v. Saeed Ahmad Khan [1988 CLC 1426 Lahore-High-Court-Lahore]: The High Court found the appellant’s actions in cancelling the auction and forfeiting earnest money to be hasty and illegal.
• Khalid Javed & Company v. Javed Oil Industries (Registered) [1988 CLC 53 Lahore-High-Court-Lahore]: The conditional leave to defend the suit granted by the Trial Court was upheld in the revisional jurisdiction of the High Court.
• Company v. Ziauddin Farooqui [1988 MLD 1399 Karachi-High-Court-Sind]: The suit was decreed due to the defendant’s absence and the plaintiff’s verification on oath along with the original documents filed.
• Gulistan Textile Mills Limited v. Basit Billa Cotton Industries Limited [1988 MLD 310 Karachi-High-Court-Sind]: The suit was decreed for the plaintiff as the plaint was on oath and was not denied by the defendants.
• Allied Bank of Pakistan Ltd. v. Jan Muhammad Bros. [1987 MLD 3008 Karachi-High-Court-Sindh]: The case highlighted the bank’s obligation to notify the account holder of a dishonoured cheque, failure of which resulted in liability for the bank due to limitation issues.
• Jamia Industries Ltd. v. Cosmic Company Ltd. [1987 MLD 53 Karachi-High-Court-Sind]: Leave to appear and defend was granted due to the discrepancy in the claimed amount and the cheque issued, suggesting a need to scrutinize the transaction’s validity.
• Muhammad Shafi v. Abdul Shakoor [1986 MLD 1515 Karachi-High-Court-Sind]: Unconditional leave to defend was granted to the defendant due to the plaintiff’s admission that the dishonoured cheques were not signed by the defendant, showcasing the importance of signature verification.
• Ghulam Hyder Khan v. Abdul Qayum [1985 CLC 2741 Karachi-High-Court-Sind]: The liability rested with the appellant who issued a dishonoured cheque, affirming the principle of accountability in cheque transactions.
• Seven Seas Services v. World Marine Services Ltd. [1985 MLD 916 Karachi-High-Court-Sind]: Conditional leave to defend was granted upon furnishing security equivalent to the dishonoured cheque, illustrating conditional relief based on the provision of security.
• Industrial Mining Enterprises Karachi v. Industrial Mineral Corporation Ltd. [1985 MLD 181 Karachi-High-Court-Sind]: The case dismissed the contention that the plaintiff and Industrial Mineral Corporation were separate entities, focusing on the substance over form.

Conclusions 

(1) While civil suits related to dishonoured cheques often result in favourable outcomes for the plaintiff, the success of such suits is contingent on the plaintiff’s ability to prove the cheque issuance and the defendant’s subsequent failure to honour it. Criminal proceedings, however, necessitate evidence of fraudulent intent, without which they may be subject to quashing. The specific provisions of the Civil Procedure Code, particularly Order XXXVII, streamline the process for recovery suits on negotiable instruments, although the defendant’s right to defend is preserved under certain conditions.

(2) In each case, the plaintiff’s ability to establish the issuance of the cheque and the defendant’s default on payment was critical for success. The courts have shown a tendency to favour plaintiffs in summary proceedings unless the defendant can produce a compelling argument or evidence to justify a full trial. The overarching theme is that while a dishonoured cheque provides a strong basis for a civil claim, it does not always equate to a criminal offence, with the exception of cases that meet the criteria under Section 138 of the Negotiable Instruments Act.

(3) The legal landscape as demonstrated by the case law indicates that criminal proceedings for dishonoured cheques are not always straightforward. In Syed Rashid Hussain v. Muhammad Ismail [1976 PCRLJ 673 Karachi-High-Court-Sind], the court held that the mere fact that a civil liability was made out was not sufficient for quashing criminal proceedings. Conversely, in cases like Fazal Haque v. State [1981 PCRLJ 63 Karachi-High-Court-Sind], the High Court quashed proceedings on the basis that the failure to pay an instalment under a contract was a civil liability, not criminal. Therefore, the initiation of criminal proceedings for dishonoured cheques must be backed by evidence suggesting a fraudulent intent at the time of issuance, as required by sections 406 and 420 of the Penal Code.

(4) The civil procedure for addressing dishonoured cheques is largely governed by Order XXXVII of the Civil Procedure Code, which allows for a summary procedure in cases involving negotiable instruments. This is evident in cases such as Messrs Qamar Impex v. Messrs Sungreen & Co. Ltd [1953 PLD 1 Sindh-Chief-Court], where the defendant applied for instalments to pay the amount due under a dishonoured cheque, an application that is permissible despite the summary nature of Order XXXVII proceedings.

(5) The chances of success in civil suits concerning dishonoured cheques are typically high, provided the plaintiff can substantiate the issuance of the cheque and the defendant’s failure to honour it. As seen in Allied Bank of Pakistan Ltd. v. Jan Muhammad Bros. [1987 MLD 3008 Karachi-High-Court-Sindh], the bank’s negligence in reversing a credit entry after three years without notice led to a successful claim against the bank due to the expiry of the limitation period against the issuer of the cheque.

(6) The cases cited primarily deal with civil proceedings related to the recovery of debts through cheques that have been dishonoured. They do not directly address criminal proceedings which can arise under Section 138 of the Negotiable Instruments Act, 1881, for the dishonour of cheques due to insufficient funds or the amount exceeding the agreement with the bank. However, the case of Barkatullah v. State [1990 PCRLJ 993 Karachi-High-Court-Sindh] touches on criminal proceedings where the High Court quashed criminal proceedings on the basis that the dispute was of a civil nature and the complaint did not disclose any criminal offence, highlighting that not all dishonoured cheque cases lead to criminal liability.

(7) The cases provide insights into the application of the Civil Procedure Code, particularly Order XXXVII, which allows for a summary procedure in suits on negotiable instruments, including cheques. This order expedites the process by limiting the defendant’s opportunity to defend and by presuming the existence of the debt unless a substantial defence is established. Provisions such as Rule 2 and Rule 3 of Order XXXVII are frequently invoked, where the defendant must seek leave to defend, and such leave is only granted if they can demonstrate a plausible defence.

(8) The success of civil suits for dishonoured cheques is typically high due to the presumption of the existence of debt under Section 118 of the Negotiable Instruments Act. If the issuance of the cheque by the defendant is undisputed and the cheque is returned unpaid by the bank, the plaintiff usually has a strong prima facie case. The defendant’s success in obtaining leave to defend hinges on their ability to present a substantial defence that merits a full trial.

(9) The adjudication of civil suits for dishonoured cheques in Pakistan is contingent upon strict adherence to procedural laws, the ability of the plaintiff to benefit from statutory presumptions, and the defendant’s capacity to mount effective rebuttals. The involvement of arbitration clauses does not necessarily preclude court proceedings for dishonoured cheques, and the conduct of the defendant, particularly their willingness to arbitrate, can influence the outcome. The success of these suits is primarily based on the establishment of the elements of the cause of action and compliance with the procedural requirements laid out in the CPC and other relevant statutes.

(10) The cited cases typically reference Order XXXVII of the CPC, which prescribes a summary procedure for suits involving negotiable instruments like cheques. This order allows for a swift disposal of these cases, given their straightforward nature concerning the existence of a debt or liability. Under Order XXXVII, Rule 2, the defendant may be required to obtain leave to defend the suit, which can only be granted if the court is satisfied that there is a substantial question of law or fact that needs to be investigated.

(11) The success of civil suits concerning dishonoured cheques under Order XXXVII of the CPC is primarily based on the presumption of liability. As per Section 118 of the Negotiable Instruments Act, there is a presumption that a cheque received by the payee is issued for the discharge of debt or liability. Therefore, unless the defendant can provide strong evidence to the contrary, the plaintiff is likely to succeed.

An Older Version of Case Notes review for this article  appears below:

(1) Mazhar Hussain vs. State 2010 P L D 60 Lahore High Court, Lahore.

The complainant registered an FIR against the petitioner/accused at Police Station “F.S” in district ‘S’. The accused contended that the FIR was without jurisdiction as the disputed cheque was issued from a bank in place ‘A’ in another district, and the cheque was also dishonored by that bank. The court ruled that there was no legal bar on the complainant to initiate criminal proceedings under Section 489-F, P.P.C. at either place ‘A’ or ‘F.S.’ Both police stations had jurisdiction to lodge the FIR.

Mahmood Akhtar Khan vs. State 2010 CLD 639 Lahore High Court, Lahore.

The accused sought the quashing of the FIR based on the contention that Section 20(4) of the Financial Institutions (Recovery of Finances) Ordinance, 2001, made the provisions of Section 489-F, P.P.C. inapplicable. The High Court declined to quash the FIR, stating that the Supreme Court’s dictum, in view of Article 189 of the Constitution, was binding on all subordinate authorities. The High Court held that the question of whether the accused issued the cheques with malafide intention could be resolved through a thorough investigation that could not be undertaken in summary proceedings under Article 199 of the Constitution. The petition was dismissed.

(2) Bashir Ahmed vs. Additional Sessions Judge 2010 Y L R 940 Lahore High Court, Lahore.

The petitioner argued that a civil suit was pending before the civil court, and an injunction was issued regarding the disputed cheque. The High Court held that civil and criminal proceedings could proceed simultaneously. The factual controversy of whether the petitioner settled the account with the respondent could only be resolved by the civil court.

(3) Sabir Ahmed vs. Nazeer Ahmed 2010 C L D 344 Karachi High Court, Sindh.

The matter was governed by the Financial Institutions (Recovery of Finances) Ordinance, 2001, which was a complete code for transactions between financial institutions and customers. The court ruled that the Police had no authority to book the accused by lodging the FIR and taking cognizance in the matter. Only the Banking Court had jurisdiction as per the provisions of the Financial Institutions (Recovery of Finances) Ordinance, 2001. The accused could not be proceeded under the provisions of the Pakistan Penal Code, and the only remedy available to the Bank and Financial Institution was to file a direct complaint under Section 20 of the Ordinance. The proceedings pending in the court of the Magistrate were quashed, and the petition was allowed accordingly.

 (4) Muhammad Khan vs. Magistrate Section 30, Pindi Gheb, District Attock. 2009 P L D 401 Lahore High Court, Lahore.

The court held that the civil nature of the dispute could not estop the complainant from invoking criminal law under Section 489-F, P.P.C. The object of this section was not to affect the recovery of the amount under the dishonoured cheque but to punish a person who dishonestly issued the cheque with reference to his civil liability. The availability of an alternate remedy to the complainant was not a ground to discharge the accused, as the complainant had the right to invoke both civil and criminal law simultaneously.

(5) Malik Tariq Mehmood vs. Askari Leasing Ltd. 2009 C L D 1422 Lahore High Court, Lahore.

The court ruled that the object and reasons for enacting the Financial Institutions (Recovery of Finances) Ordinance, 2001, and the Penal Code, 1860, were different. The case fell within the ambit of the Financial Institutions (Recovery of Finances) Ordinance, 2001, as the lessee of the vehicle was a “customer” within the meaning of the Ordinance. The Banking Court had the criminal jurisdiction to try offences punishable under the Ordinance. The registration of an FIR under Section 489-F, P.P.C., or allowing it to exist, was considered a wastage of time and an abuse of the process of law. The High Court allowed the constitutional petition and directed the police not to take the law into its own hands in cases covered under the Financial Institutions (Recovery of Finances) Ordinance, 2001.

(6) Muhammad Asghar vs. State 2008 MLD 717 Lahore High Court, Lahore.

The court considered the pre-arrest bail confirmation and determined that the real controversy in the case was whether the cheques were issued by the accused dishonestly to defraud the complainant or with a bona fide intention. The matter between the parties was of a purely civil nature, already sub judice before a competent forum. The investigation established that the cheques had not been dishonored due to insufficient funds but were refused encashment under the accused’s instructions. The court found that the accused had no dishonest intention to deceive or defraud the complainant, which was a main ingredient of the offence under Section 489-F, P.P.C. The court confirmed the ad interim pre-arrest bail granted to the accused.

(7) Syed Hassan Raza vs. Deedar Hussain Shah 2008 PLD 305 Karachi High Court, Sindh.

The court examined the validity of the magistrate’s order disagreeing with the summary report and directing the investigating officer to submit the charge sheet under Section 173, Cr.P.C. The accused had issued a cheque to the complainant, which was subsequently dishonoured. The accused gave contradictory instructions to the bank regarding the payment of the cheque to the complainant. The court found that this contradictory stand made out a case under Section 489-F, P.P.C. The magistrate had the competence to apply his judgment while taking cognizance of the case and was justified in passing the order. The court dismissed the petition, stating that the impugned order did not suffer from any illegality.

(8) Muhammad Younis vs. State 2006 P CR L J 994 Lahore High Court, Lahore.

The court dealt with the quashing of proceedings in a case where the challan was submitted against all persons named in the FIR. Two accused persons/petitioners applied for their discharge, but the trial court refused to discharge them despite being placed in column No.2 of the report under Section 173, Cr.P.C. with remarks of innocence. The complainant alleged that the cheque in question was issued by a person other than the petitioners. The High Court concluded that the case against the petitioners could not proceed based on the record and directed the trial court not to proceed against them, considering the case against them as cancelled.

(9) Syed Hassan Raza vs. Deedar Hussain Shah and others PLD 2008 Karachi 305 Before Abdur Rahman Faruq Pirzada, J.

The accused had issued a cheque of Rs. 1,97,000 in favor of the complainant, but later instructed the bank to stop the payment, claiming that the payment had already been made in cash to the complainant. The contradictory stand taken by the accused in dealing with the complainant raised a prima facie case under Section 489-F, P.P.C. The accused did not deny his signatures on the cheque, and such prima facie evidence could not be disregarded. The impugned order did not suffer from any illegality.

(10) Maj. (Rtd.) Javed Inayat Khan Kiyani vs. The State PLD 2006 Lahore 752 Before Syed Shabbar Raza Rizvi, J.

The purpose of Section 489-F, P.P.C. was to prevent fraudulent or dishonest issuance of cheques to cause dishonest gain or loss. The term “dishonestly” was explained to mean that the gain or loss contemplated need not be total acquisition or deprivation, but even temporary retention of property by the person wrongfully gaining or temporary “keeping out” of the property from the person legally entitled was sufficient. The definition of “dishonestly” was clarified and explained in the context of the case.

(11) Iftikhar Akbar vs. The State 2008 MLD 159 Before Sh. Azamat Saeed, J.

The issuance of a cheque that is subsequently dishonoured does not automatically constitute an offence under Section 489-F, P.P.C. unless it is proven that the cheque was issued dishonestly and for the purpose of repaying a loan or fulfilling an obligation.

(11A) Tahir Rashid vs. The State and 4 others 2007 YLR 518 [Lahore] Before Ijaz Ahmad Chaudhry, J.

The cheque in question was issued as a guarantee for a person dealing with the complainant/petitioner. However, the cheque was dishonoured twice due to insufficient funds, which prima facie indicated an offence under Section 489-F, P.P.C. Whether the cheque was issued as a guarantor or for repayment of a loan or fulfilling an obligation required further examination of evidence. The Magistrate had agreed with the police report without properly considering the facts of the case, and thus, the impugned order was set aside, and the case was remanded to the Magistrate for fresh consideration.

(12) Major Anwar-Ul-Haq vs. The State PLD 2005 Lahore 607 Before Ali Nawaz Chowhan, J.

The application and scope of Section 489-F, P.P.C. should not be applied mechanically immediately when a cheque is returned by a banker. The rationale behind the enactment of this section is to be applied only when there is prima facie evidence that the cheque was issued dishonestly for the purpose of payment of a loan. Past conduct of the party is also to be considered, and business transactions, genuine disputes, and contractual obligations may not indicate an intention for the offence.

(13) Sheikh Mureed Hussain vs. S.H.O Police station Kohsar, Islamabad and 2 others. 2005 P Cr. L J 144 [Lahore] Before Tanvir Bashir Ansari, J.

The petitioner issued a notice through counsel, explaining the circumstances in which the disputed cheque was issued. Even during the police investigation, the petitioner was found prima facie innocent, and the lodging of the F.I.R. was deemed to be the result of an ulterior motive, which was negatived. The constitutional petition for quashing the F.I.R. registered under Section 489-F P.P.C. was allowed, and the F.I.R. was directed to be quashed.

(14) Shah Jehan Khetran vs. Sh. Mureed Hussain and others 2005 SCMR 306 Mian Muhammad Ajmal and Faqir Muhammad Khokhar, JJ

The disputed cheque had inadvertently been issued to the complainant from a different account, and it was later found that the complainant had already paid the entire amount. The High Court found from the record that there was a nomination form issued by the complainant in favor of the accused along with a notice informing the transfer of his membership of Islamabad Stock Exchange to the accused. As a result of the police investigation, the accused was found prima facie innocent.

(15) Muhammad Ayub vs. Rana Abdul Rehman [Lahore] Before Ali Nawaz Chowhan, J

Section 489-F, P.P.C. is only applicable in cases where a cheque is issued for the purpose of repaying a loan or fulfilling an obligation, and the cheque is subsequently dishonored. It does not cover any other purposes. Cheques issued for purposes other than loan repayment or fulfillment of obligations are not covered under the definition of Section 489-F, P.P.C. Applications seeking cancellation of bail were dismissed as they did not pertain to the defined purpose. An application seeking post-arrest bail was allowed accordingly.

(16) In cases Major (retd) Ijaz Ahmad Bhatti vs. The State and 3 others 2005 P Cr. L J 1462 and Abdul Rehman vs. S.H.O Police Station Kot Sumaba Rahim Yar Khan and another, 2006 P Cr. L J 157, ref. 31 19. Aamir Shehzad vs. The State and another PLD 2005 Lahore 568, Before Asif Saeed Khosa, J

The petitioner contended that a civil suit had already been filed against the complainant regarding the same cheque, and an injunctive order had been issued by the Civil Court in respect of the said cheque prior to the registration of the impugned F.I.R. The petitioner alleged that the relevant cheque had been issued to the brother of the complainant but had been returned to him and later stolen by the complainant for the purpose of registering the F.I.R. The petitioner argued that the F.I.R. was based on malice.

The High Court found that the alleged dishonoring of the relevant cheque had occurred before the issuance of any injunctive order by the Civil Court. Therefore, the offence, if any, had already been committed before the Civil Court’s order. The Court stated that a Civil Court cannot stop the laying of an information before the police regarding a cognizable offence. No injunction can be granted by a Civil Court against criminal investigation or in any criminal matter. The High Court declined to interfere in the matter at this stage.

(17) Seema Fareed and others vs. The State and another. 2008 S C M R 839 Rana Bhagwandas and Saiyed Saeed Ashhad, JJ

The Court emphasized that a criminal case must be allowed to proceed on its own merits, and the existence of civil proceedings relating to the same transaction does not constitute a legal bar to the maintainability of criminal proceedings. Both civil and criminal proceedings can proceed concurrently because conviction for a criminal offence is different from civil liability.

(18) Rehan Nasir vs. S.H.O, P.S Raiz Bazar, Distt. Faisalabad and 2 others. 2008 Y L R 2505 Before M. Bilal Khan, J

In this case, the Court addressed the issue of quashing an F.I.R. through a constitutional petition. The Court stated that the contentions raised on behalf of the accused needed a factual inquiry, which could not be undertaken in the constitutional jurisdiction under Art. 199 of the Constitution. Criminal proceedings cannot be held in abeyance solely due to the pendency of a civil suit. Both civil and criminal proceedings can be carried out simultaneously. The presentation of a valid cheque for encashment cannot be termed an attempt to receive money by illegal means or by force. The constitutional petition was dismissed accordingly. The Court reiterated that criminal proceedings are not barred in the presence of civil proceedings and both can proceed concurrently.

(19) In the case of Muhammad Asif vs. Muhammad Javed Akhtar 2006 M L D 1184 before Sh. Hakim Ali, J

The defendant applied for the cancellation of an ex parte decree passed against him in a suit for recovery based on a bounced cheque. The defendant argued that since the plaintiff had already availed the criminal remedy under S.489-F, P.P.C., the civil suit under O.XXXVII, Rr.1 & 2, C.P.C. filed against him was not maintainable.

The High Court rejected this contention and held that civil suits and criminal proceedings are two different remedies provided by law, each having different consequences. In a criminal offence under S.489-F, P.P.C., punishment is provided, while in a civil suit, recovery proceedings are initiated to recover the established amount. As both remedies are not overlapping, a person can simultaneously avail of both remedies if the law confers them.

Subsection (3) of section 522-A, Cr.P.C. explicitly states that a civil suit is not barred even in the presence of this section. The exercise of the right to file a civil suit does not hinder the lodging of an F.I.R. under S.489-F, P.P.C., and vice versa. Different rights to commence proceedings of civil or criminal nature can coexist with different results, and they can be availed of differently. The maxim “a man should not be vexed twice” does not apply in such cases.

(20)  Allah Ditta vs. Additional Sessions Judge, Sheikhupura and Others (P L D 2011 Lahore 246)

In this case, the petitioner, Allah Ditta, filed a constitutional petition seeking the staying of criminal proceedings against him under Section 489-F of the Pakistan Penal Code, which deals with the dishonest issuance of cheques. The petitioner had been accused of dishonestly issuing a cheque, and an FIR (First Information Report) had been registered against him by the complainant/respondent.

The petitioner had also filed a civil suit, but it was important to note that the civil suit had been filed much after the registration of the FIR. The court observed that the civil suit was not pending prior to the registration of the criminal case, and both civil and criminal proceedings could be initiated side by side.

The court emphasized that criminal and civil proceedings relating to the same transaction were not legally barred from continuing simultaneously. Both proceedings could co-exist and proceed concurrently, as they served different purposes. The objective of criminal proceedings was to punish the offender for committing a crime, while civil proceedings aimed to enforce rights arising from contracts or agreements.

The court further clarified that the judgment of a civil court could not be used as evidence in criminal proceedings to establish the truth of the facts on which it was based. Therefore, the criminal trial could not be stayed solely because of the pendency of a civil suit.

Ultimately, the court dismissed the constitutional petition, stating that the impugned orders refusing to stay the criminal proceedings until the decision of the civil suit were not illegal or perverse. The court upheld the principle that both civil and criminal proceedings could proceed independently without any legal restriction, and one could not be stifled for the other.

In conclusion, the case establishes that civil and criminal proceedings can co-exist and proceed simultaneously without any legal hindrance. The outcome of one proceeding does not directly impact the other, as they serve distinct purposes and have different standards of proof.

Evaluation of the modern Pakistani law on bounced/dishonoured cheques 

For any business or trade to thrive, there is a paramount need for security and a proper judicial system to remedy contract breaches and address damages caused by fraud, cheating, breach of trust, or criminal acts. The Constitution of Pakistan, in Article 37(d), emphasizes the importance of a judicial system that provides quick, certain, and cost-effective justice.

The offence defined in the provision of Section 489-F of the Pakistan Penal Code has specific elements that must be present to constitute the offence. These include dishonest issuance of a cheque, issuance of a cheque for loan repayment or fulfillment of an obligation, and subsequent dishonoring of the cheque by the bank (case reference: Mian Allah Ditta v. The State and others, 2013 SCMR 51).

While cheques may serve various purposes beyond those constituting an offence under the provision, the question of whether dishonor of a security cheque would fall under the same provision has been subject to debate. Recently, the Lahore High Court addressed this issue and concluded that even dishonoring a security cheque may be considered an offence under Section 489-F if the right for recovery of the amount has accrued on the date of presentation. The court rejected the broad notion that all security cheques are beyond the scope of Section 489-F, P.P.C., emphasizing the need to analyze each transaction carefully (case reference: Muzzafar Ahmed Vs the State, 2021 PCRLJ 1393).

One notable challenge faced by stakeholders in the criminal justice system regarding the application of the provision is whether the offence is limited to natural persons or can be extended to juristic persons. Section 11 of the Pakistan Penal Code includes companies, associations, and other bodies of persons, whether incorporated or not, as persons. Juristic persons, such as corporate bodies, can be indicted for criminal acts and omissions of their directors, authorized agents, or servants, regardless of the presence of Mens Rea (case reference: Mirza Ishtiaq Hussain Vs. Abdul Qadeer, 1982 PCRLJ 463).

Another issue that arose in cases falling within the provision was the concept of “self-cheque.” The Lahore High Court recently held that when the drawer is also the payee, as in a “self-cheque,” the offence under Section 489-F is not attracted (case reference: Naveed Ishaq Vs Ex. Officio Justice of Peace, W.P No.4190 of 2021).

Superior courts have emphasized that this provision should not be misused to recover amounts that are otherwise a civil remedy. It has been repeatedly held that Section 489-F PPC is applicable only to cases where the dishonored cheque is issued for loan repayment or fulfilling an existing obligation. It has been clarified by the Supreme Court of Pakistan that the obligation must exist at the time of issuing the cheque and cannot be based on a future possible default. Thus, cheques issued as surety, guarantee, or for possible future defaults cannot be considered as cheques issued towards discharge of an obligation under Section 489-F PPC. Any provision constituting a criminal offence with punitive consequences must be strictly and narrowly interpreted (case references: Mian Muhammad Akram v. The State, 2014 SCMR 1369 & Mian Allah Ditta v. The State, 2013 SCMR).

The provision under consideration differs from ordinary offences in the Pakistan Penal Code as it primarily pertains to civil transactions involving negotiable instruments, specifically cheques. For a comprehensive understanding of the nature of the instrument and the rights and obligations associated with it, reference to the relevant law, the Negotiable Instruments Act of 1881, becomes necessary. Thus, investigating officers handling cases under this provision must be well-versed and skilled, possessing adequate knowledge of the relevant laws.

Once a charge sheet is submitted, the trial procedure for the offence remains the same as in ordinary magisterial trial cases. The burden of proof lies with the prosecution to establish all the essential elements of the offence against the accused unless the accused invokes a statutory defence, which, if proven, renders the charge groundless (case reference: Muhammad Sultan V/s. State of Pakistan, 2010 SCMR 806).

The trial of the offence under this provision and the pursuit of a civil remedy concurrently or consecutively does not constitute double jeopardy. The purpose of criminal charges is to punish the wrongdoer for the offence committed, while civil remedies aim to recover the due amount from the accused. Both processes have distinct features and objectives. However, courts have discouraged the lodging of multiple FIRs for different cheques arising from the same transaction. It has been held that if more than one FIR is lodged for separate cheques originating from the same transaction, they would not be admissible, and the accused may be entitled to acquittal or the case could be canceled in “C” class prior to cognizance, with reference to the cheques included in the first FIR (case references: Sheikh Rehan Ahmed V/s. Judicial Magistrate Karachi, 2019 MLD 636 & Hamid Khan vs. The State, 2022 M L D 31).

The interpretation of this provision, like any other law, is continually evolving and progressing. Presently, the plea of a security cheque does not entirely absolve the offence, and a bounced self-cheque would not amount to an offence. Moreover, the lodging of multiple FIRs based on different cheques forming part of the same transaction and cause of action has been discouraged by the courts.

Legal Update (2021): Naveed Ishaq Vs Ex. Officio Justice of Peace, W.P No.4190 of 2021 The Lahore High Court, in a recent ruling, clarified that dishonoring a “self cheque” does not warrant the filing of a criminal case under section 489-F of the Pakistan Penal Code (PPC) unless there is an endorsement in favor of the bearer.

Justice Muhammad Shan Gul made this ruling, overturning a decision of a justice of peace who had ordered the registration of a First Information Report (FIR) against a petitioner based on the dishonoring of a “self” cheque, where no endorsement in favor of the eventual bearer was recorded.

The judge emphasized that section 154 of the Criminal Procedure Code (CrPC) mandates the registration or recording of information related to the commission of a cognizable offence. For a criminal case to be established, the information provided by the informant must allege the commission of a cognizable offence.

In cases where a cheque is made out to “self” only, and there is no supporting evidence that the bearer was, in fact, a holder in due course of such a cheque, the commission of a cognizable offence cannot be established. Therefore, dishonoring a “self cheque” without proper endorsement in favor of the bearer does not qualify as a criminal offence under section 489-F of the PPC.

Frequently Asked Quetions (FAQs):

1. What conditions make the dishonoring of a cheque an offence in Pakistan? Dishonoring a cheque becomes an offence when it is issued dishonestly by one person to another.
2. In what circumstances is the dishonoring of a cheque not an offence in Pakistan? The circumstances leading to the dishonoring of a cheque can vary, and in some cases, it may not be considered an offence when the signatory has made prior arrangements with their bank to ensure that the cheque will be honored. If the bank is at fault for not honoring the cheque, it may not be deemed an offence. It is essential to seek legal advice tailored to your specific situation in such cases.
3. What is the penalty for dishonoring a cheque in Pakistan? Dishonestly issuing a cheque is an offence under the statute, and it can lead to both civil and criminal remedies. The punishment for bouncing a cheque can include imprisonment for up to three years and a fine.
4. How can I take legal action to recover the amount when a cheque is dishonored due to insufficient funds? You can lodge a First Information Report (FIR) against the signatory and simultaneously file a civil suit. There is no legal bar to conducting criminal and civil proceedings simultaneously. However, it is advisable to issue a notice of the dishonoring of the cheque before lodging the FIR.
5. My cheque was dishonored by a company. Can I recover my amount? Can I lodge an FIR against the company? In such cases, you can lodge an FIR against the signatory who issued the cheque and also file a civil suit. Criminal and civil proceedings can run simultaneously, and there is no legal prohibition against it.
6. What actions can be taken if the defaulter becomes a proclaimed offender and is untraceable? If the defaulter has been declared a proclaimed offender, you should request the court to proceed with the matter and record all relevant evidence. This will help when the defaulter is eventually arrested, and the witnesses are not readily available. Simultaneously, you can file a suit for recovery in the civil court at the defaulter’s last known address.
7. Where should I lodge an FIR for a dishonored cheque – at the bank where it was dishonored or at the place where the cheque was issued? You can lodge the FIR either where the cheque was dishonored or at the place where the accused carries out their business. The choice depends on the specific facts of your case.
8. If a partnership firm issued the dishonored cheque, and the firm is now dissolved, can I still recover my amount? On the civil side, all partners are jointly liable to pay the amount. However, in criminal proceedings, only the partner who issued or signed the cheque can be prosecuted.
9. In a partnership firm, if only some partners are actively running the business and signing cheques, are all partners liable if a cheque bounces? The partner who issued the cheque will be prosecuted. However, on the civil side, if any person committing the offence was in charge and responsible for the firm at the time of the offence, they can also be held liable.
10. What about offences committed by companies in Pakistan? If a cheque is issued dishonestly, both the signatory of the cheque and the CEO of the company will be prosecuted.