「 ✦ Content ✦ 」

Introduction

While cheque bounce is a term commonly used by ordinary people dealing in financial transactions through cheques, it is not uncommon for lack of knowledge regarding what invites criminal proceedings. While an erroneous signature may lead to return of cheque, you cannot sue a person for cheque bounce under Negotiable Instruments Act. In order to sue a person under NI Act, the requisites of Section 138 must be all met. For that, knowing what Section 138 of the Negotiable Instruments Act, 1881 holds is important.

Section 138 of NI Act

“138. Dishonour of cheque for insufficiency, etc., of funds in the account.—

Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provisions of this Act, be punished with imprisonment for a term which may be extended to two years, or with fine which may extend to twice the amount of the cheque, or with both:

Provided that nothing contained in this section shall apply unless—

(a) the cheque has been presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier;

(b) the payee or the holder in due course of the cheque, as the case may be, makes a demand for the payment of the said amount of money by giving a notice in writing, to the drawer of the cheque, [within thirty days of the receipt of information by him from the bank regarding the return of the cheque as unpaid; and

(c) the drawer of such cheque fails to make the payment of the said amount of money to the payee or, as the case may be, to the holder in due course of the cheque, within fifteen days of the receipt of the said notice.

Explanation.—

For the purposes of this section, “debt or other liability” means a legally enforceable debt or other liability.”

Cheque Bounce under Negotiable Instruments Act

Having read the provision under Section 138 of NI Act, what can be understood is that:

• Cheque drawn returned by the bank unpaid

• The cheque was drawn against a legal debt or liability

• Cheque returned due to insufficiency of funds or due to amount exceeding the limit set by the drawer

• Cheque was presented within the validity period

• The demand of amount was made through a legal notice for cheque bounce within the limitation period

• The drawer did not repay the amount within the limit mentioned in the legal notice

• The debt against which the cheque was drawn was legally enforceable and not a gift, etc.

With all the conditions fulfilled, the authorised person may proceed with a complaint under Section 138 for cheque bounce under NI Act. The Magistrate shall take note of the criminal complaint along with the relative evidence, i.e., cheque bounce memo, returned cheque, legal notice under the provision, documents depicting the legal debt, any other transactions, etc.

FAQs on Cheque Dishonour under NI Act

Q-  What is the punishment for cheque bounce under Negotiable Instruments Act?

Answer - As per Section 138 of NI Act, the punishment for cheque bounce under NI Act is a maximum of 2 years of imprisonment with or without fine. 

Q- Who is responsible if a cheque bounces?

Answer - In case of private persons, the one who draws the cheque and under whose name the concerned bank account is, is responsible for cheque bounce case. In case of a company, the Director authorised for drawing cheques would usually be responsible for legal proceedings.

Q- Can we file FIR for cheque bounce?

Answer - No, the requirements for a First Information Report (FIR) include serious crimes, while cheque bounce is more of a financial aspect which got criminal garb only for protecting financial interests. Thus, for cheque bounce under Negotiable Instruments Act, one has to lodge a criminal complaint with the Magistrate.