When the drawer of a cheque is unable to discharge its enforceable debt or any other liability to the payee of the cheque, consequently the cheque being dishonored due to insufficient funds or in case the amount surpasses the amount in the drawer's bank, the payee of the cheque has the legal right in taking the case forward under Section 138 of the Negotiable Instruments Act.
In case the cheque bounces there might be criminal prosecution under the Act and it is a punishable offence. The signatory/drawer of the cheque could be imprisoned for up to two years or a fine could be imposed which may extend to double the amount mentioned in the cheque or in some cases both could happen. It is noteworthy that proceedings under Section 138 N.I. Act is an alternate remedy. The aggrieved party can also initiate proceedings before the Civil Court for the recovery of amount.
In case the drawer is a person, then the proceedings would take place under Section 138 of the NI Act. If any company is the drawer, all the directors of the company who are actively involved in the transaction, including the pursuant to which the cheque is issued, can also be prosecuted under Section 141 of the Act. When the insolvency proceedings are initiated against the accused company, Cheque Bounce Complaint can still continue and there would be no automatic stay of the proceedings.
Essential Elements of Section 138 Before One is to Proceed for Criminal Complaint:
In order to comprise an offence under Section 138 of the Act, the following key points must be satisfied:
- A cheque must be drawn by a person on a bank account maintained by him.
- The issuance of cheque should be done by the payer to discharge the debt or liability.
- The cheque must be deposited by the payee within six months from the date the cheque is drawn or during the period of validity of the cheque, whichever is earlier out of the two.
- That cheque has been presented to the bank within three months from the date on which it is drawn.
- The bank has returned the cheque unpaid due to the amount of money standing to the credit of the account is not sufficient to honour the cheque. Other reason could be issuance of stop payment instructions by the Drawer to the Drawee Bank or that it exceeds the amount arranged to be paid from that account by an agreement made with the bank or when the mismatching of signature is done deliberately on the cheque.
- A written notice must have been issued by the payee to the payer within 30 days of receipt of information for the return of the cheque as unpaid from the bank.
- The drawer of the cheque is unable to make a payment to the payee within 15 days of receipt of the notice
- The complaint is to be filed before the Court of Chief Judicial Magistrate/Chief Metropolitan Magistrate within one month of the date of expiry of the 15 days of receipt of the notice.
Where can be a complaint filed?
The Complaint can only be filed in Court within whose local jurisdiction the branch of the bank of the payee is located and where he deposits the cheque for payment using his account, However, in case of bearer cheques, they are presented to the bank’s branch of the drawee and in this case the local court of that branch would attain jurisdiction.
List of Documents to be submitted in Court:
In case the Complaint is to be filed:
- Any agreement/contract between complainant & accused including order(s) placed (if any)
- Invoice / Bill against which dishonoured cheque was issued
- Any other document that is evidence of the creation of debt or liability
- Correspondence Exchanged between the parties.
- Original Dishonoured Cheque
- Bank Memo stating the reason for dishonour of cheque
- Legal notice’s copy sent to the accused
- Proof of dispatch of the above legal notice
- Postal Acknowledgment received from the accused
In case of accused:
- Communication exchanged between the parties
- Documents showing there are no liabilities on the accused.
- Reply to Demand Notice.
The proceedings that occurs during the cheque bounce cases are brief in nature and they are not proceeded in a way the other criminal trials are proceeded.
For a strong argument in this matter, the accused person must take the bail. In cases of cheque bounce, the parties may settle the matter outside the court mutually.
INTERIM COMPENSATION UNDER SECTIONS 143 A AND 148 OF N.I. (AMENDMENT) ACT 2018
Directions from the court can be issued for interim compensation under section 143 A and the compensatory amount should not exceed 20 per cent of the amount of the cheque.
Thus, it can be seen that Section 138 of the Negotiable Instruments Act provides provisions to the payee at the time of dishonouring of a cheque and the law ensures that the offenders face serious repercussions.
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