Section 138 of the Negotiable Instruments Act, 1881 (“NI Act”) is the principal section dealing with dishonor of cheque. The offence under section 138 is not a natural crime like injury or murder. It is a civil liability transformed into a criminal liability by a legal fiction in the statute, imprisonment under which can be upto 2 years.
Timing and procedure are very important in cheque bouncing cases.
Once the cheque has been bounced, step one is to send a Demand Notice within 30 days (from the date you found out that the cheque issued to you has bounced) to the drawer of the cheque whereby you threaten to initiate proceedings under the NI Act, if the amount due is not paid in 15 days. If the drawer is a company, notice should be sent to its managing director and he can be personally prosecuted under Section 141 of the NI Act. Proof of service of the notice is very important in this case. Further, the demand notice can be sent in person also, not necessarily through a lawyer. However, a demand notice sent on the letter head of the lawyer shows seriousness of the sender in adopting legal path if the amount is not paid.
The drawer of the cheque has 15 days (from the date of receipt of the notice) to make payment. If the drawer fails to make payment within that time, complaint before the judicial magistrate or metropolitan magistrate should be filed within a period of not more than 30 days.
With a view to encourage usage of cheques and enhance its credibility, sections 143 – 146 of the NI Act has been introduced for summary trial of such complaints. Further, the offence has become compoundable by virtue of Section 147 of NI Act to enable you to settle the liability outside court.
Further, with a view to clarify the legal position on jurisdiction on courts, the Government amended the NI Act in 2015 and inserted Section 142(2) whereby the complainant can institute a complaint under Section 138 in court within whose local jurisdiction the bank branch of the payee, the person who receives the cheque, lies. Under this rule, the aggrieved person can file a cheque bounce case in his area and the defendant will have to travel to defend himself, enhancing the strength of the legal recourse.
It should be noted that if the cheque was issued as a gift, donation, or any other obligation which is not legally enforceable, criminal complaint under the NI Act is not maintainable.
Please contact us for further consultation on these matters.