Section 138 of Negotiable Instruments Act, 1881

 

Section 138 of Negotiable Instruments Act, 1881



Section 138 related to dishonour of cheque for insufficiency, etc. of fund in the account.

Where any cheque drawn by a person on an account maintained by him with a banker-

·       for payment of any amount of money

·       to another person from that account

·       Either because of the : -

Amount of money standing to the credit of that account is insufficient to honour the cheque, or

That it exceeds the amount arranged to be paid from that account by an agreement made with that bank.

Punishment:- Maximum imprisonment 2 year,

or Maximum Fine Twice of Amount, or

Both.

Bail amount in under section 138 of negotiable act, 1881

Law requires the accused to deposit 20% of cheque amount failing which case will be heard and decided ex-party.

Provided that this section shall not apply, unless-

Cheque presented within the validity period:- The cheque has been presented within the validity of period of three (3) months from the date of issue of cheque or within the periods of its validity, whichever is earlier.

Demand of payment through the notice:- The payee or HDC (holder in due course) of the cheque, as the case may be, makes a demand for the payment of the said amount of money by giving a notice, in writing, to the drawer of the cheque, within 30 days of the receipt of information by him from the bank regarding the return of the cheque as unpaid, and

Failure of drawer to make payment:- The drawer of such cheque fails to make the payment of the said amount of money to the payee or, as the case may be, to the holder in due course of the cheque, within 15 days of the receipt of the said notice.

Reasons of dishonour a cheque

There are many reasons to dishonour of cheque which is stated below:-

  • Insufficient funds in the payer’s bank account
  • Signature missing or mismatch
  • Account number mismatch
  • An issue with the date of the cheque
  • Mismatch in the amount of words and numbers
  • Disfigured or damaged cheque
  • Crossing the limit of the overdraft
  • Scribbling, overwriting or omissions on the cheque without authorization(signature) of the payer
  • Cheque is expired
  • Drawer’s account is closed
  • Payment is stopped by the drawer
  • Garnishee order on account
  • Death or insanity of the drawer
  • The seal of the company is missing on the cheque issued by an organization
  • Suspicion of a forged cheque

Can we file a FIR for a cheque bounce?

Yes, we can file an FIR against the person who has issued a cheque. A person can then file a case against the issuer of the cheque under Section 420 or 406 of the Indian Penal Code (IPC) in a criminal court.

Section 420 related to cheating & dishonestly including delivery of property and Section 406 belongs to punishment of criminal breach of trust.

Case Law

The case of M/s. Dalmia Cement (Bharat) Ltd. v. M/s.Galaxy Traders & Agencies Ltd. & Ors. is one of the cases whose judgment became a landmark for the Supreme Court, in this case, reasoning behind the enactment of Section 138 of the Negotiable and Instruments Act, 1881 was given. The facts of the case revolve around dishonouring of the cheque because of which notice was issued to inform the accused. When the same was received by the complainant by that time the period of filing the complaint was given to expire. The same thing happened for the second time as well with the accused failing to provide with the amount.

The court basing its judgement on the existing facts said that Section 138 of the Act has been made keeping in concern any kind of infringement of legal right of the person whose payment has not been issued and therefore if any such situation arises which will make it impossible for the person to get the payment then in such case, the section should function the way it has been laid down to keep the objective of the Act. Thus, in this case, the court ordered actions to be carried out against the respondent as laid down in the Act.


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