Bouncing of Cheque under Negotiable Instruments Act, 1881
CHEQUE BOUNCE UNDER NEGOTIABLE INSTRUMENTS ACT
According to Section 138 of the Negotiable Instruments Act of 1881 (“Act”), bouncing a check is an offence that is punished by a fine up to double the value of the check, up to two years in prison, or by both. A check is said to have bounced when the payee presents it to the bank for payment and the bank returns it unpaid with a memo of insufficient funds.
A cheque might bounce for a number of reasons, but it is an act of fraud under the Act if it does so because there are not enough money in the account of the drawer. The bank must issue a return memo explaining why it rejected the cheque offered for payment due to insufficient funds. When this occurs, the payee of the check may send a notice of cheque bounce to the drawer requesting payment of the cheque amount.
SECTION 138 0F NEGOTIABLE INSTRUMENTS ACT, 1881
The following elements must be present in order to abide by Section 138’s requirements:
- A person must have drawn a check to pay money to someone else to satisfy a debt or other obligation;
- Within a three-month window, that check was delivered to the bank;
- The bank returns the check as unpaid, either due to inadequate money or because the amount on the check exceeds the bank’s arrangement for payment from that account;
- The payee demands payment of the money by sending a written notice to the cheque’s drawer within 30 days of receiving notification from the bank that the cheque was returned as unpaid.
Therefore, in order for a cheque to be judged to have violated Section 138 of the Negotiable Instruments Act, 1881, the aforementioned requirements must have been satisfied. In the 2013 case of MSR Leathers v. S. Palaniappan, the court made the following observation.
According to Section 142(2) (a), a court with local jurisdiction over the branch of the bank where the account holder’s account is located will hear the case for a cheque bounce if a check is delivered for collection by an account. This court cannot be lower than a Metropolitan Magistrate or a Judicial Magistrate of the First Class/Degree.
According to Section 142(2)(b), a court not lower than a Metropolitan Magistrate or a Judicial Magistrate of the first class/degree, whose local jurisdiction includes the branch of the bank where the holder’s account is located, will try the case if the cheque is presented for payment to the payee or holder in due course otherwise via an account.
WHAT ARE THE REASONS FOR CHEQUE BOUNCE?
The following are the numerous circumstances that lead to a bounced check:
Insufficient account balance – The bank will reject and return the check to the payee with a memo stating that there are insufficient funds to cover the cheque amount if there is not enough balance in the drawer’s account to make the payment of the cheque.
Cheque that has passed its expiration date must be presented for payment within three months of the drawer issuing it. If the check is not submitted to the bank within three months, it becomes invalid. When a bank receives an expired check, it bounces.
Overwriting: A check will bounce if it has been overwritten with the drawer’s signature, the amount of the check, or any other declaration.
Cheque that has been destroyed or defaced, with the details obscured or covered in stains or marks, will bounce.
The check will bounce if the drawer’s signature is illegible, missing, or does not match the one on file with the bank.
PROCEDURE RELATED TO CHEQUE BOUNCE UNDER SECTION 138 NEGOTIABLE INSTRUMENTS ACT, 1881
- Within 30 days of the check being returned unpaid, a legal notification containing all pertinent facts must be delivered to the drawer via registered mail or email. The issue is settled if the drawer makes the payment within the allotted 15 days.
- If the payment is not made, the complainant must file a criminal complaint against the drawer under Section 138 of the Act with the relevant magistrate court within the jurisdiction within 30 days of the expiration of the 15-day period specified in the notification.
- In order for the complaint to be filed, the defendant or his authorized representative must testify in the witness box and submit relevant facts. If the complainant’s claims are proven to be accurate by the court, the accused will be summoned to appear before the court.
- The court may issue a warrant with the ability to post bail if the accused does not appear after being served with the summons. After that, the court could issue a non-bailable warrant if the drawer still hasn’t shown up.
- The drawer/accused will provide a bail bond to ensure his appearance at the trial if he shows up. The accused’s plea is then officially recorded. The court will deal with the case for sentencing if he makes a guilty plea. A copy of the complaint will be delivered to the defendant in the event that he disputes the accusations.
- The complainant is free to submit all of the supporting paperwork, including the originals, in the form of an affidavit in support of his case. The claimant or complainant will be questioned by the accused or his attorney.
- The accused will have the opportunity to make his case. Aside from calling witnesses in his defence, the accused would also be able to offer evidence in support of the prosecution’s case against him. The accused and his witnesses will be questioned by the defendant in response.
- The court will make a ruling following the arguments, which constitute the last round of the process.
RECENT CASE LAWS RELATED TO SECTION 138 OF NEGOTIABLE INSTRUMENTS ACT
In the case of Dashrath Rupsingh Rathod v. State of Maharashtra and another (Criminal Appeal No. 2287 of 2009),
It was determined that the court whose local jurisdiction the offence was committed in—in this case, the location where the check was dishonoured by the bank on which it is drawn—has exclusive jurisdiction over cases involving the dishonour of checks. According to a directive from the Supreme Court, only those cases would proceed at that location where the recording of evidence has started following the summoning and appearance of the alleged accused in accordance with section 145(2) of the Negotiable Instruments Act, 1881. The complainant will receive all additional complaints (including those where the accused or responder has not been properly served) so they can be filed in the proper court, in consonance with an exposition of the law, as determined by the supreme court.
The Delhi High Court evaluated whether mediation might be used to resolve a criminally compoundable offence under Section 138 in the matter of Dayawati v. Yogesh Kumar Gosain, 2017.
The Court decided that there was no specific legislative provision authorising the criminal court to refer the plaintiff and those who had been convicted to other dispute resolution procedures. Arbitration is permitted and recognised by the Code of Criminal Procedure (“Cr.P.C.”) without any conditions or restrictions on how it may be accomplished. Therefore, there is no prohibition on employing alternative dispute resolution processes like arbitration, mediation, and conciliation (all of which are recognised under Section 89 of the Civil Procedure Code of 1908) to settle disputes involving offences covered by Section 320 of the Cr.P.C. It also mentioned the Section 138 of the Act are distinct from other criminal cases and that they are more similar to a civil wrong with criminal overtones.
AMENDMENT UNDER SECTION 138 OF NEGOTIABLE INSTRUMENTS ACT
A court must order the drawer to pay interim compensation to the claimant of no more than 20% of the cheque sum within 60 days of the trial court’s order under the Negotiable Instruments (Amendment) Act, 2018, which went into effect on September 1, 2018.
This interim fee may be assessed in a summary trial, summons case, following the formulation of a charge in another case, or upon the drawer’s plea of not guilty to the claims made in the complaint. Additionally, while hearing appeals against convictions under Section 138, the Amendment permits the Appellate Court to order the claimant to deposit a minimum of 20% of the fine/compensation issued, in addition to temporary compensation.
The Negotiable Instruments Act contributes to preventing the misuse of checks and ensuring seamless transactions by punishing the offence of a bounced check. Additionally, the accused is entitled to apply defences to stop fictitious instances of check bounce or dishonour. However, as these situations include a number of technicalities and call for incredibly accurate proof of the transactions, one must proceed with the utmost prudence while dealing with cheque bounce issues. It differs from other criminal trials.
Author: Anshika Jain,
Amity University, Madhya Pradesh, B.A. LL.B (Hons.), 3rd year