Answer By law4u team
In India, the primary law that deals with the dishonour of cheques, commonly known as a cheque bounce, is the Negotiable Instruments Act, 1881 (NI Act). Specifically, Chapter XVII of the Negotiable Instruments Act, 1881 (NI Act), which comprises Sections 138 through 142, was introduced into the statute book through an amendment in the year 1988 to enhance the credibility of negotiable instruments like cheques and to ensure that trade and commerce are not adversely affected by unscrupulous drawer individuals who issue cheques without adequate funds or with the intention of defrauding the payee. Under Section 138 of the Negotiable Instruments Act, 1881 (NI Act), a cheque bounce is treated as a criminal offense, provided certain strict statutory conditions and timelines are meticulously met by the holder in due course of the cheque. To successfully initiate legal proceedings under Section 138 of the Negotiable Instruments Act, 1881 (NI Act), the payee or the holder of the cheque must fulfill a specific sequence of procedural steps within mandatory limitation periods. First, the cheque must be presented to the bank within its validity period, which is typically three months from the date printed on the face of the cheque. Second, when the bank returns the cheque unpaid, the bank issues a formal memo stating reasons such as insufficient funds, exceeds arrangement, payment stopped by drawer, or account closed. Third, upon receiving the return memo, the payee must issue a formal demand notice in writing to the drawer of the cheque within thirty days from the date of receiving information about the dishonour from the bank. This notice must explicitly demand the payment of the cheque amount and warn the drawer of potential legal action under the Negotiable Instruments Act, 1881 (NI Act). Fourth, the drawer of the cheque is granted a statutory period of fifteen days from the date of the receipt of this legal notice to make the payment to the payee. If the drawer fails to make the payment within this fifteen-day window, a cause of action arises, and the payee gets the right to file a criminal complaint in the appropriate court of magistrate. The complaint under Section 138 of the Negotiable Instruments Act, 1881 (NI Act) must be filed before the competent Judicial Magistrate of the First Class or Metropolitan Magistrate within thirty days from the expiry of the fifteen-day period given in the demand notice. It is important to note that recent amendments under Section 142 of the Negotiable Instruments Act, 1881 (NI Act) have clarified the territorial jurisdiction of courts for filing these complaints. Jurisdiction now vests primarily in the court within whose local limits the branch of the bank where the payee maintains their account is situated, in cases where the cheque is delivered for collection through an account. If the cheque is presented for payment by the payee otherwise through an account, the jurisdiction lies with the court within whose local limits the branch of the drawee bank where the drawer maintains the account is situated. Regarding the penalties and punishments, a person found guilty of an offense under Section 138 of the Negotiable Instruments Act, 1881 (NI Act) can face rigorous legal consequences. The court may sentence the offender to imprisonment for a term which may extend up to two years, or impose a fine which may extend to twice the amount of the cheque, or both. Furthermore, under Section 143 of the Negotiable Instruments Act, 1881 (NI Act), offenses under this act are tried summarily by magistrates to expedite the delivery of justice. Section 143(1) also provides that the trial should ideally be concluded within six months from the date of filing the complaint. Additionally, Section 143A of the Negotiable Instruments Act, 1881 (NI Act) empowers the court to order the drawer to pay interim compensation to the complainant during the pendency of the proceedings, which can be up to twenty percent of the cheque amount, ensuring that the complainant receives some immediate financial relief while the trial is ongoing. Apart from the criminal remedy available under the Negotiable Instruments Act, 1881 (NI Act), the payee also has civil remedies under Indian law for the recovery of money. The payee can file a summary suit for recovery of money under Order 37 of the Code of Civil Procedure, 1908 (CPC), which provides a faster track for civil recovery compared to ordinary civil suits, as the defendant does not have an automatic right to defend the suit unless granted leave to defend by the civil court. The criminal prosecution under the Negotiable Instruments Act, 1881 (NI Act) and the civil suit for recovery under the Code of Civil Procedure, 1908 (CPC) can both be pursued simultaneously because the criminal law aims to punish the wrongdoer for the breach of trust and statutory compliance, whereas the civil law aims strictly at the recovery of the debt or legally enforceable liability owed to the payee.
