What Is The Process Under Section 138 For Handling Bounced Checks?

Section 138 Process

Section 138 of the Negotiable Instruments Act, 1881, deals with the dishonor of checks (bounced checks) in India. Here’s a detailed breakdown of the process:

1. Issuance of Check:

A check is issued by a drawer (person who writes the check) to a payee (person or entity receiving the check) as a form of payment.

2. Check Bouncing:

The check is presented to the bank, but it is returned unpaid due to insufficient funds, account closure, or other reasons.

3. Bank Memo:

The bank issues a memo or slip indicating that the check has bounced. This memo is provided to the drawer.

4. Notice to Drawer:

The payee must send a legal notice to the drawer within 30 days from the date of receiving the bank memo. The notice should demand payment of the bounced check amount along with any applicable charges. The drawer has 15 days from the receipt of this notice to make the payment.

5. Filing a Complaint:

If the drawer fails to make the payment within the 15-day period after receiving the notice, the payee can file a criminal complaint under Section 138 in the magistrate’s court. The complaint must be filed within one month from the expiry of the 15-day period.

6. Court Proceedings:

Upon filing the complaint, the magistrate will initiate legal proceedings. The drawer may be summoned to court. The court will then examine evidence, including the bounced check, bank memo, and notice served.

7. Judgment:

If the court finds the drawer guilty, they may be punished with imprisonment for a term that may extend up to two years, or a fine that may extend to twice the amount of the check, or both.

8. Appeal:

The drawer has the right to appeal the judgment if they are convicted. This appeal can be filed in a higher court.

9. Recovery of Amount:

The payee may also seek recovery of the check amount through civil proceedings, in addition to the criminal complaint under Section 138.

Summary

The Section 138 process involves issuing a check, the check bouncing, sending a legal notice to the drawer, filing a criminal complaint if the payment is not made, and attending court proceedings. If the court finds the drawer guilty, they may face imprisonment, fines, or both. The payee can also pursue civil recovery.