What is Section 138 of the Negotiable Instruments Act, 1881?

Answer By law4u team

Section 138 of the Negotiable Instruments Act, 1881 deals with the dishonour of cheques due to insufficient funds or if the amount exceeds the amount arranged to be paid. It provides the legal framework for the criminal liability of a drawer (the person who writes the cheque) if a cheque issued by them is dishonoured. Here are the key points: 1. Dishonour of Cheque: Section 138 makes the dishonour of a cheque due to insufficient funds or if it exceeds the amount arranged to be paid, a criminal offense. The offence is triggered when the cheque is dishonoured after being presented for payment. 2. Conditions for Liability: The following conditions must be met for an offence under Section 138: A cheque is issued by the drawer. The cheque is dishonoured due to insufficient funds or because it exceeds the amount in the account. The payee or holder of the cheque issues a notice to the drawer demanding payment within 30 days of receiving information about the dishonour. The drawer fails to pay the amount within 15 days from the receipt of the notice. 3. Time Limit: A complaint under Section 138 can be filed within one month from the expiry of the 15-day period after the notice is received. If the drawer fails to make the payment after the notice period, legal action can be taken. 4. Punishment: The drawer may be punished with imprisonment for a term which may extend to two years, or with a fine which may extend to twice the amount of the cheque, or with both. 5. Criminal Liability: Section 138 is a criminal offense, but the matter can often be settled by paying the outstanding amount before the court proceeds with a formal trial. 6. Defenses: The drawer can present defenses, such as proving that the cheque was issued for a purpose other than payment, or that the cheque was post-dated, or that there was a genuine mistake regarding the funds. Conclusion: Section 138 of the Negotiable Instruments Act, 1881 makes the dishonour of a cheque due to insufficient funds a criminal offence, subjecting the drawer to legal consequences such as imprisonment and fines. It aims to ensure that cheques are used responsibly and that creditors can recover amounts owed to them.

Answer By Ayantika Mondal

Dear Client, Amongst the most important provisions in Indian law is Section 138 of the Negotiable Instruments Act, 1881. This provision deals with cheque dishonor on account of inadequate funds. It was introduced so as to add credibility to cheques as a form of payment and to prevent dishonesty in drawers of negotiable instruments. Key Provisions of Section 138 1. Dishonor of Cheque: According to the section, an offense is brought if the cheque is returned to the bank due to inadequacy of funds, or the cheque exceeds more than the amount arranged for its payment by the drawer. 2. Legal Notice Requirement: Before initiating legal proceedings, the payee or holder in due course must issue a written notice to the drawer within 30 days of receiving information regarding the dishonor of the cheque. This notice must demand payment of the cheque amount. 3. Time for Payment: The payee has 15 days from the date of receipt of this notice to pay. In case the amount is not paid within that period, the recipient can file a complaint under Section 138. 4. Punishment: Convicted drawer could be detained for a period which might exceed up to two years, or he may suffer a fine which may amount to more than double the sum of cheque drawn or both. 5. Cognizable Offense: Section 138 crime is a cognizable offense. This means that police can arrest someone without a warrant and start legal action without the permission of a magistrate first. Significance and Implications This section 138 provision is designed to infuse confidence in the banking system and ensure that cheques are honored as a method of transaction. It is also a deterrent to the issuing of cheques when there is not enough money and gives payees a legal remedy in the event of losing money because of dishonored cheques. Hope this answer helps you.