Negotiable Instruments Act Section 138: Cheque Bounce Legal Guide!

Section 138 of the Negotiable Instruments Act (NI Act) makes the dishonour of a cheque (due to insufficient funds, etc.) a criminal offence, punishable by imprisonment up to 2 years, a fine up to double the cheque amount, or both, aiming to restore trust in banking transactions; the procedure involves a bounced cheque, a mandatory written demand notice (within 30 days of dishonour), and if the drawer fails to pay within 15 days of notice, the payee can file a criminal complaint within 30 days of the notice period's end.

What is NIA 138?

NIA 138 refers to Section 138 of the Negotiable Instruments Act, 1881 (India).

It deals with the dishonour of a cheque issued for a debt or liability, specifically when it bounces due to insufficient funds or account closure.

Procedures involved:

Cheque Presentation & Return: The payee presents the cheque, and the bank returns it unpaid (dishonoured).

Demand Notice: The payee must send a written demand notice to the drawer within 30 days of receiving bank information about the dishonour.

Payment Window: The drawer has 15 days from receiving the notice to make the payment.

Criminal Complaint: If the drawer fails to pay within those 15 days, a criminal complaint can be filed by the payee in a Magistrate's court within 30 days of the notice period expiring.

Why is it criminal in nature?

Restores Trust: Section 138 was introduced to bring back credibility to cheques as instruments of payment in business and personal dealings, which was eroded by irresponsible cheque issuance.

Punishment: It makes the act a punishable offence, not just a civil debt recovery, with potential imprisonment and fines, targeting the drawer's irresponsibility.

Quasi-Criminal: While intended to enforce payment (a civil goal), the legal proceedings are considered quasi-criminal (hybrid), aiming to penalize the wrongdoer while compensating the victim.

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