NI Act 138 (cheque bouncing)
What is NI Act 138 (Cheque Bouncing)
The Negotiable Instruments Act, 1881 is a statutory law in India that governs various negotiable instruments, including promissory notes, bills of exchange, and cheques. Section 138 of the Negotiable Instruments Act, commonly known as the “Cheque Bouncing” provision, deals with the dishonor of cheques due to insufficient funds in the bank account of the drawer.
Here’s an overview of the key provisions and implications of Section 138 of the Negotiable Instruments Act:
Conditions for Prosecution: Section 138 allows for criminal prosecution of a person (drawer of the cheque) if the following conditions are met:
- The cheque issued by the drawer for the discharge of a debt or liability is returned unpaid by the bank due to insufficient funds or if the amount exceeds the available balance.
- The payee (beneficiary of the cheque) serves a legal notice within 30 days of the receipt of the information regarding the dishonor of the cheque, demanding payment of the amount due.
- The drawer fails to make the payment of the cheque amount within 15 days of receiving the legal notice.
Criminal Liability: If the above conditions are met, the drawer of the bounced cheque can be held criminally liable. The payee may file a criminal complaint against the drawer in a court having jurisdiction over the matter.
Penalties: Upon conviction under Section 138, the drawer may be punished with imprisonment for a term extending up to two years or with a fine, or with both. In addition, the drawer may also be liable to pay compensation to the payee, which may extend to twice the amount of the cheque or the amount of the cheque.
Presumption: Section 139 of the Negotiable Instruments Act creates a legal presumption that the cheque was issued for the discharge of a debt or liability unless proven otherwise by the drawer.
Bailable Offense: Offenses under Section 138 are generally bailable, meaning the accused can apply for bail as a matter of right. However, the court may impose conditions while granting bail, such as providing sureties or bonds.
Scope of Applicability: Section 138 applies to all types of cheques, including post-dated cheques and electronic cheques (e-cheques), irrespective of the mode of issuance.
Benefits of NI Act 138 (Cheque Bouncing)
Deterrent Against Dishonored Cheques: Section 138 acts as a deterrent against issuing cheques without sufficient funds in the drawer’s account or issuing cheques with the intent to defraud. Knowing the legal consequences of cheque bouncing encourages individuals and businesses to ensure that they have adequate funds before issuing cheques.
Legal Redressal for Creditors: Section 138 provides a legal recourse for creditors or payees whose cheques are dishonored due to insufficient funds. It allows them to initiate legal proceedings against the drawer of the cheque to recover the amount owed, along with statutory penalties and costs.
Prompt Settlement of Disputes: The provision for cheque bouncing cases under Section 138 of the Negotiable Instruments Act provides for a summary trial procedure, ensuring swift adjudication of disputes related to dishonored cheques. This helps in the prompt settlement of financial disputes and recovery of dues.
Presumption of Debt: Section 138 of the Negotiable Instruments Act creates a legal presumption that the cheque was issued towards the discharge of a debt or liability. This facilitates the burden of proof for the payee, making it easier to establish the existence of a debt or liability owed by the drawer of the cheque.
Criminal Liability: Issuing a cheque that is dishonored under Section 138 of the Negotiable Instruments Act can lead to criminal liability for the drawer. The provision includes penalties such as imprisonment or fines, providing a strong deterrent against fraudulent or negligent issuance of cheques.
Compensation for Payee: In addition to the principal amount of the cheque, Section 138 allows the payee to claim compensation, typically twice the amount of the cheque, as specified in the statute. This provides additional restitution for the inconvenience, financial loss, and legal expenses incurred due to the dishonored cheque.
Preservation of Commercial Confidence: The existence of legal provisions like Section 138 of the Negotiable Instruments Act promotes confidence in commercial transactions by ensuring that payment obligations are honored and disputes are promptly addressed. This fosters trust and reliability in business dealings.
Prevents Abuse of Cheque System: By imposing legal consequences for dishonored cheques, Section 138 helps prevent abuse of the cheque system, maintains the integrity of financial transactions, and promotes financial discipline among individuals and businesses.
Documents of NI Act 138 (Cheque Bouncing)
Original Cheque: The original dishonored cheque is a crucial document required as evidence of the dishonored transaction. It serves as proof that the cheque was issued by the drawer and subsequently dishonored by the bank due to insufficient funds or other reasons.
Cheque Return Memo (CRM): A copy of the Cheque Return Memo issued by the bank stating the reasons for dishonor, such as “Insufficient Funds”, “Account Closed”, “Payment Stopped”, etc. This document verifies that the cheque was indeed dishonored by the bank.
Notice of Demand: A legal notice of demand sent by the payee to the drawer informing them about the dishonor of the cheque and demanding payment of the amount within a specified period (usually 15 days). The notice should be sent through registered post with acknowledgment due (RPAD) to ensure proper documentation.
Acknowledgment Receipt: The acknowledgment receipt received from the postal department confirming the delivery of the notice of demand to the drawer. This serves as evidence that the drawer was duly informed of the dishonor and the demand for payment.
Proof of Service: Documentary evidence proving that the notice of demand was served on the drawer, such as the postal receipt, courier receipt, or delivery acknowledgment.
Reply or Response: If the drawer responds to the notice of demand, either by making payment or disputing the claim, copies of the response correspondence should be retained as evidence.
Bank Statements: Bank statements or account statements of the payee showing the transaction details, including the issuance of the cheque, its presentation, and subsequent dishonor by the bank.
Witness Statements: Statements from witnesses, if any, who can attest to the issuance of the cheque by the drawer, the transaction for which the cheque was given, and the subsequent dishonor.
Legal Representation Documents: Documents authorizing legal representation, such as the vakalatnama or power of attorney, if the payee is represented by an advocate or legal representative.
Any Other Relevant Documents: Any other documents relevant to the case, such as correspondence between the parties, agreements, contracts, or records related to the transaction for which the cheque was issued.
