A cheque bounce case under Section 138 of the Negotiable Instruments Act, 1881 is one of the most common forms of legal action in financial disputes. If a person issues a cheque that is dishonored or returned due to insufficient funds or any other reason, the recipient can file a case under Section 138 to seek legal redress.
Section 138 aims to protect the payee’s rights and deter fraudulent and dishonest practices in the use of cheques. In this article, we will discuss in detail how to file a cheque bounce case under Section 138, the procedure involved, the legal provisions, and what one must know about the process.
1. Understanding Section 138 of the Negotiable Instruments Act, 1881
Section 138 of the Negotiable Instruments Act specifically deals with the offense of dishonor of a cheque for insufficiency of funds or if it exceeds the amount arranged by the drawer’s account. The section states:
- If a cheque issued for the payment of money is dishonored by the bank due to insufficient funds or if the account is closed, the person who issued the cheque (known as the drawer) commits an offense.
- This section also allows the payee (the person to whom the cheque is issued) to file a complaint against the drawer in case of cheque dishonor.
A person found guilty of violating Section 138 can be sentenced to imprisonment for up to two years or fined, or both. The offense is cognizable, meaning police intervention is possible, and it is also compoundable, which means the matter can be settled between the parties involved.
2. Eligibility to File a Cheque Bounce Case under Section 138
A cheque bounce case can be filed under Section 138 if the following conditions are met:
- A Cheque is Issued for Payment: A cheque must be issued for a legally valid debt or liability.
- Dishonored by the Bank: The cheque must be dishonored by the bank due to reasons like insufficient funds, the account being closed, or signature mismatch.
- Notice within 30 Days: The payee must send a formal written notice to the drawer within 30 days from the receipt of the bank’s dishonor memo.
- Failure to Pay: After receiving the notice, the drawer must fail to make the payment within 15 days from the receipt of the notice.
If these conditions are met, the payee can approach the court to file a criminal case under Section 138.
3. Steps to File a Cheque Bounce Case
If you are the payee and want to file a cheque bounce case under Section 138, here’s a step-by-step guide on how to proceed:
Step 1: Check the Dishonor of the Cheque
First, you must ensure that the cheque has been dishonored by the bank for valid reasons, such as insufficient funds or a closed account. The bank will issue a Cheque Return Memo or Memorandum of Dishonor stating the reason for the dishonor.
Step 2: Send a Legal Notice
Once the cheque is dishonored, you must send a legal notice to the drawer (the person who issued the cheque). The notice should be sent within 30 days from the date of receiving the dishonor memo. The notice must include:
- The details of the dishonored cheque (cheque number, amount, and date).
- A demand for the payment of the cheque amount within 15 days from the receipt of the notice.
- A statement that if payment is not made within the stipulated time, legal action will be taken against the drawer under Section 138.
The notice can be sent via registered post with acknowledgment due to ensure proof of delivery.
Step 3: Wait for Response
After the legal notice is sent, the drawer has 15 days to pay the cheque amount. If the drawer makes the payment during this period, the matter is resolved, and no further legal action is needed. However, if the drawer fails to make the payment, you can proceed with filing a case under Section 138.
Step 4: File a Complaint in Court
If the payment is not made within the 15-day period after the receipt of the legal notice, you can file a criminal complaint in the appropriate Magistrate Court. The complaint should include the following details:
- The original dishonored cheque.
- The dishonor memo from the bank.
- A copy of the legal notice sent to the drawer.
- A copy of the acknowledgment of receipt of the legal notice.
- Any other relevant documents, such as the agreement under which the cheque was issued (if applicable).
The complaint must be filed within 30 days from the expiration of the 15-day period after sending the notice.
Step 5: Court Hearing and Legal Proceedings
Once the complaint is filed, the court will initiate proceedings and summon the drawer. The court will determine if the drawer is guilty of an offense under Section 138 based on the evidence provided. If the court finds the drawer guilty, they can impose a fine or imprisonment or both.
4. What Happens During the Court Proceedings?
Once the case is filed in the Magistrate Court, the following steps occur:
- Issuance of Summons: The court will issue a summons to the drawer, asking them to appear in court.
- Appearance of Parties: Both parties— the complainant (payee) and the accused (drawer)—must appear in court.
- Examination of Evidence: Both parties will present their evidence. The complainant needs to provide the dishonored cheque, the dishonor memo, proof of the notice, and any other relevant documents. The accused may provide evidence to contest the case.
- Witness Testimony: If required, the complainant can provide witnesses who can testify about the case. Similarly, the accused may also bring in witnesses.
- Verdict: If the court finds the drawer guilty of the offense, the court may sentence them to imprisonment for a period up to two years, impose a fine, or both. The fine may also include the amount of the cheque, along with additional compensation to the complainant.
5. Time Limit to File the Case
The complainant must file the case within one month from the expiration of the 15-day notice period after receiving the dishonor notice. If this deadline is missed, the complainant may not be able to file a case under Section 138.
6. Defenses Available to the Drawer
The drawer may have a few defenses available in the case:
- No Debt or Liability: The drawer may argue that no debt or liability exists or that the cheque was issued for a different purpose.
- Forgery or Alteration: If the drawer claims that the cheque was forged or altered, they must prove this.
- Technical Defenses: The drawer may also challenge the legal notice or the procedure followed during the case, such as the non-fulfillment of requirements like the 15-day notice.
7. Compounding of Offense
Section 138 provides the option of compounding the offense, meaning that both parties can agree to settle the matter outside of court. If the complainant agrees, the drawer can pay the dues, and the case may be closed.
8. Conclusion
Filing a cheque bounce case under Section 138 is an effective legal remedy for anyone whose cheque has been dishonored due to insufficient funds or other valid reasons. By following the correct procedure— sending a legal notice, filing a complaint, and presenting solid evidence in court— you can ensure that justice is served. If you are unsure about the legal process, it is advisable to consult with an experienced lawyer who can guide you through the entire process of filing a cheque bounce case.