Section 138 Negotiable Instruments Act

Introduction

Cheques are widely used for transactions such as loan repayment, salary payments, bill settlements, and fees. A vast number of cheques are processed and cleared by banks daily, serving as proof of payment. Despite their reliability, cheque bounce cases are increasing. To address such cases, the law under Section 138 of the Negotiable Instruments Act, 1881, lays down a specific procedure.

Nature of the Offence

An offence under Section 138 is non-cognizable, meaning the police cannot arrest the accused without a warrant, and bailable, allowing the accused to seek bail as a matter of right.

Essential Conditions for an Offence under Section 138

For an offence under this section to be established, the following five conditions must be met:

1. The drawer issues a cheque to discharge a debt or liability.

2. The cheque is presented within six months from the date it is drawn (or within the validity period, whichever is earlier).

3. The cheque is dishonoured and returned unpaid by the drawee bank.

4. A statutory notice is sent to the drawer within 30 days of receiving information about the dishonour, demanding payment.

5. The drawer fails to make payment within 15 days of receiving the notice.

   
   

Punishment for Dishonour of Cheque

If the above conditions are met, the drawer may face:

• Imprisonment for up to two years, or

• Fine up to twice the cheque amount, or

• Both imprisonment and fine.

  
  

Procedure for Filing a Complaint

Once the timelines under Section 138 are met, the complainant must file a complaint before the concerned Magistrate within 30 days from the expiry of the 15-day payment period. The complaint must be signed by:

• The complainant themselves, or

• A duly authorized power of attorney holder, or

• In case of a company, a director or an authorized representative of the board.

If multiple cheques were issued as part of the same transaction, a single complaint can be filed for up to four cheques, as per legal precedent [2019 (4) Civ. CC 508 All.].

Summoning and Trial Process

• When a complaint is filed along with an affidavit, the Magistrate examines the documents and, if satisfied that an offence has been committed, takes cognizance and issues a Summoning Order.

• Summons are issued under Section 144 of the NI Act.

• If the accused appears in court, they must furnish a bail bond to ensure their presence during the trial.

• A notice under Section 251 of the Cr.PC is then served, and the trial begins.

  
  

Compounding of Offence (Settlement of Case)

Though compounding (settlement) of cheque bounce cases usually requires the consent of both parties, the court, in the interest of justice, can discharge the accused if it is satisfied that the complainant has been duly compensated. This principle was upheld by the Supreme Court in Meters and Instruments (P) Ltd. vs. Kanchan Mehta (2018) 1 SCC 560.

Conclusion

This structured legal procedure ensures that cheque dishonour cases are handled efficiently while balancing the interests of both the complainant and the accused, thereby upholding the rule of law.