Section 138 Of NI Act, 1881: All You Need To Know About Cheque Bounce Notice

A cheque bounce occurs when a bank refuses to process a cheque due to various reasons, leading to non-payment to the payee. This can result in financial losses and legal consequences for both parties involved. Understanding the implications of a cheque bounce notice under Section 138 of the Negotiable Instruments Act, 1881, is crucial for individuals and businesses to avoid penalties and legal action.

What is Section 138 of the NI Act, 1881?

Section 138 of the Negotiable Instruments Act, 1881, governs the dishonour of cheques due to insufficient funds or other valid reasons. It prescribes criminal liability for the issuer of a dishonoured cheque when it was issued for the discharge of a legally enforceable debt or liability. The section aims to instill confidence in the banking system and promote the credibility of negotiable instruments.

Causes of Cheque Bounce

Several factors can lead to a cheque being dishonoured:

1. Insufficient Funds – The most common reason for a cheque bounce is when the issuer’s account does not have sufficient balance to cover the cheque amount.
2. Incorrect Date – A cheque may be dishonoured if it is post-dated or stale (cheque validity generally lasts for three months).
3. Signature Mismatch – If the signature on the cheque does not match the bank’s records, the cheque is likely to be rejected.
4. Account Closure – A cheque issued from a closed account will automatically bounce.
5. Alterations on the Cheque – Any overwriting or modifications on a cheque can result in its rejection.
6. Mismatched Figures and Words – If the numerical and written amounts on a cheque do not match, the bank will dishonour the cheque.
7. Damaged Cheque – A cheque that is torn or defaced may not be processed by the bank.
8. Frozen Account – If the issuer’s bank account is frozen due to legal reasons, any cheque issued from the account will be dishonoured.

Cheque Bounce Notice and Its Legal Consequences Under Section 138

Under Section 138 of the Negotiable Instruments Act, 1881, a cheque bounce is considered a criminal offence if the dishonoured cheque was issued for the discharge of a legally enforceable debt or liability.

Steps Involved in a Cheque Bounce Case

1. Cheque Return Memo – When a cheque bounces, the bank issues a cheque return memo stating the reason for dishonour.
2. Issuance of Legal Notice – The payee must send a legal notice to the issuer within 30 days of receiving the cheque return memo, demanding payment within 15 days.
3. Filing a Complaint – If the issuer does not make the payment within 15 days, the payee has the right to file a legal complaint within 30 days.
4. Court Proceedings – The case will be heard in a magistrate’s court, and if found guilty, the issuer may face penalties and imprisonment.

Time Limit for Filing a Cheque Bounce Case

As per Section 138 of the NI Act, the timeline for taking legal action is as follows:

• The payee must send a demand notice within 30 days of receiving the cheque return memo.
• The issuer has 15 days from the receipt of the notice to make the payment.
• If the issuer fails to pay, the payee has 30 days to file a complaint in court.
• The court then initiates proceedings, and the case is decided based on the evidence presented.

Penalties and Charges for Cheque Bounce

• Bank Charges – Both the issuer and the payee may be liable for cheque bounce charges imposed by their respective banks.
• Legal Penalties – Under Section 138, the issuer can be fined up to twice the cheque amount.
• Imprisonment – In severe cases, the issuer may face up to two years in jail.
• Criminal Record – A conviction under Section 138 results in a criminal record, affecting the issuer’s financial credibility.

Legal Remedies for the Payee

• Sending a Demand Notice – The payee must issue a legal demand notice to the issuer seeking payment.
• Filing a Civil Suit – If the cheque bounce is related to a high-value transaction, the payee can file a civil suit for recovery.
• Criminal Complaint – A criminal complaint under Section 138 can be filed in the appropriate court if the issuer fails to comply with the demand notice.
• Alternative Dispute Resolution – The payee and the issuer can opt for arbitration or mediation to resolve the dispute amicably.

Preventive Measures to Avoid Cheque Bounce

• Maintain Adequate Funds – Ensure your account has sufficient balance before issuing a cheque.
• Verify Details – Double-check the date, amount, and signature before issuing a cheque.
• Avoid Overwriting – Issue a fresh cheque in case of any errors instead of making corrections.
• Use Digital Payments – Consider online banking and UPI transactions to reduce reliance on cheques.
• Communicate with Payee – Inform the payee in advance if there is any likelihood of insufficient funds.

Consulting a Cheque Bounce Lawyer in Navi Mumbai

If you are facing a cheque bounce issue, seeking legal advice is essential. Advocate Pooja Gupta, an experienced cheque bounce lawyer in Navi Mumbai, can provide expert guidance on handling cheque bounce cases and legal proceedings effectively.

Conclusion

A cheque bounce lawyer in navi mumbai can lead to severe financial and legal consequences under Section 138 of the NI Act. Understanding the reasons, legal provisions, and preventive measures can help individuals and businesses avoid complications. If faced with a cheque bounce issue, seeking legal assistance is advisable to ensure proper compliance with the law.