What Is the Punishment Under Section 138?

Definition: Section 138 of the Negotiable Instruments Act, 1881, deals with the punishment for dishonor of a cheque due to insufficient funds or if it exceeds the amount covered by the account.

Punishment Under Section 138 of the Negotiable Instruments Act:

1. Nature of Offense:
   • Dishonor of Cheque: The offense under Section 138 occurs when a cheque is dishonored due to insufficient funds or if it exceeds the amount covered by the account, and the drawer fails to make good the payment within the specified period after being notified.
2. Punishment:
   • Imprisonment: The drawer of the dishonored cheque may be punished with imprisonment for a term which may extend to two years.
   • Fine: Alternatively, or in addition to imprisonment, the drawer may be fined an amount that may extend to twice the amount of the cheque.
   • Both: The court may impose both imprisonment and fine, depending on the circumstances of the case.
3. Procedure:
   • Notice: The payee must issue a legal notice to the drawer within 30 days of receiving the dishonor memo from the bank.
   • Response Time: The drawer must make the payment within 15 days of receiving the notice. Failure to do so can lead to legal proceedings.
   • Complaint: If the drawer fails to respond, the payee can file a complaint in the magistrate’s court.
4. Defenses:
   • Validity of Cheque: The drawer may contest the claim if they can prove the cheque was not issued for a legally enforceable debt or if there were issues with the transaction.
   • Technical Grounds: The drawer might challenge the complaint on procedural or technical grounds, such as improper notice or lapse of time limits.
5. Remedies:
   • Recovery of Amount: Apart from the criminal penalties, the payee can also seek recovery of the cheque amount through a civil suit.

Summary: Under Section 138 of the Negotiable Instruments Act, 1881, the punishment for dishonor of a cheque due to insufficient funds or exceeding the covered amount includes imprisonment for up to two years, a fine up to twice the cheque amount, or both. The process involves issuing a notice, providing a response period, and filing a complaint if the drawer fails to make the payment.