Punishment for Cheque Bounce under Section 138 of the Negotiable Instruments Act, 1881
Section 138 of the Negotiable Instruments Act, 1881 provides stringent provisions to handle cases where a cheque is dishonored due to insufficient funds or if the amount exceeds the arrangement made with the bank. The primary objective of this section is to promote the sanctity of financial transactions conducted via cheques, and to ensure that creditors are not cheated by debtors through non-payment of cheques.
Below is a detailed explanation of the punishment under Section 138, followed by frequently asked questions (FAQs) related to it.
Punishment for Cheque Bounce under Section 138
If a cheque bounces due to insufficient funds or for any reason stipulated under Section 138, the drawer of the cheque can be punished with:
- Imprisonment: The drawer can be sentenced to imprisonment, which may extend up to two years.
- Fine: The drawer can also be fined, which may be up to twice the amount of the cheque.
- Both: The court may impose both imprisonment and a fine, depending on the gravity of the offense.
The punishment aims to act as a deterrent against the misuse of cheques in business and financial transactions.
Step-by-Step Legal Process under Section 138
- Cheque Dishonor: When a cheque is presented to the bank and is dishonored due to insufficient funds or exceeds the agreed arrangement.
- Legal Notice: The payee must send a demand notice to the drawer within 30 days of receiving the dishonor memo from the bank, demanding payment of the cheque amount.
- Grace Period for Payment: The drawer is given 15 days from the receipt of the notice to make the payment.
- Filing the Complaint: If the drawer fails to make the payment within 15 days, the payee can file a criminal complaint in court within 30 days after the expiry of the 15-day period.
- Court Proceedings: The court examines the complaint, and if the offense is proven, it can impose the punishment under Section 138.
Important FAQs Related to Punishment for Cheque Bounce
1. What is the maximum punishment for a cheque bounce under Section 138?
The maximum punishment for a cheque bounce under Section 138 of the Negotiable Instruments Act is imprisonment of up to two years or a fine that can be as much as twice the cheque amount, or both.
2. Can the drawer be imprisoned for a cheque bounce?
Yes, the drawer can be sentenced to imprisonment for up to two years if found guilty under Section 138. The court, based on the facts and circumstances of the case, may decide to impose imprisonment along with or instead of a fine.
3. How is the fine amount determined for a cheque bounce?
The fine for a cheque bounce can be up to twice the amount of the cheque. The court determines the fine based on the cheque amount and the circumstances of the case. The intention behind imposing such a heavy fine is to ensure that the payee gets compensated, and to discourage misuse of cheques.
4. Is there any way to avoid imprisonment in a cheque bounce case?
Yes, if the drawer of the cheque makes the payment within the 15-day notice period, the matter is considered settled, and no legal action will be taken. Moreover, courts often encourage settlement and may allow the accused to pay compensation to the complainant to avoid imprisonment, particularly in cases where the accused is a first-time offender.
5. What happens if the drawer pays the cheque amount after receiving the legal notice?
If the drawer makes the payment within the 15-day grace period after receiving the legal notice, no legal action will be taken. The payee cannot file a criminal complaint under Section 138 once the payment has been made, as the matter is resolved.
6. What happens if the accused fails to appear in court after a complaint is filed?
If the accused fails to appear in court after being summoned, the court may issue a bailable or non-bailable warrant for arrest. If the accused repeatedly avoids court hearings, a non-bailable warrant may be issued, and the accused can be taken into custody.
7. Can a cheque bounce case be compounded or settled outside of court?
Yes, Section 147 of the Negotiable Instruments Act allows for compounding of offenses under Section 138. This means that the parties can settle the case outside of court, even after the complaint has been filed. The court may then quash the proceedings based on the settlement.
8. Is anticipatory bail possible in a cheque bounce case?
Yes, the accused can apply for anticipatory bail in a cheque bounce case to avoid arrest. The court may grant anticipatory bail based on the circumstances, especially if it finds that the accused does not intend to evade justice.
9. Can a company or its directors be prosecuted under Section 138?
Yes, if a cheque issued by a company is dishonored, the company and its directors or officers responsible for the conduct of the company’s affairs can be prosecuted under Section 138. If convicted, they may face imprisonment or fines.
10. What are the defenses available to the accused in a cheque bounce case?
The accused can defend themselves by:
- Proving that there was no legally enforceable debt at the time the cheque was issued.
- Showing that the cheque was given as a security, not for discharging a debt.
- Proving that the payee did not follow the procedural requirements of issuing a legal notice within the stipulated time.
11. What is the time limit for filing a cheque bounce case?
The following time limits must be observed:
- The payee must send a legal notice within 30 days of receiving the information of the cheque dishonor.
- The drawer has 15 days to make the payment.
- If the payment is not made, the payee must file the complaint within 30 days after the expiry of the 15-day period.
12. Is imprisonment mandatory in all cheque bounce cases?
No, imprisonment is not mandatory in all cheque bounce cases. Courts have the discretion to impose either a fine or imprisonment based on the circumstances of the case. In many cases, courts may opt for imposing a fine or ordering the drawer to pay compensation to the complainant.
13. Can a court order interim compensation to the payee in a cheque bounce case?
Yes, under Section 143A of the Negotiable Instruments Act, courts can order the drawer to pay interim compensation of up to 20% of the cheque amount to the complainant at the time of framing charges.
14. Can a post-dated cheque be prosecuted under Section 138?
Yes, a post-dated cheque is considered a valid instrument once it is presented for payment on or after the date mentioned. If it bounces due to insufficient funds, the drawer can be prosecuted under Section 138.
15. Can a cheque issued as a loan or gift be prosecuted under Section 138?
For a valid prosecution under Section 138, the cheque must have been issued for the discharge of a legally enforceable debt or liability. A cheque issued as a loan or gift may not qualify unless there is a legally enforceable obligation to pay.
Conclusion
The punishment under Section 138 of the Negotiable Instruments Act, 1881, serves as a deterrent against the misuse of cheques, ensuring that individuals and businesses do not face undue financial losses due to bounced cheques. The law provides for both imprisonment and monetary penalties, with courts having the discretion to impose one or both depending on the facts of the case.
Section 138 aims to maintain the sanctity of cheque-based transactions in commercial dealings, ensuring accountability and protecting the interests of the payee. The procedural safeguards and defenses available to the accused also ensure that no one is wrongfully convicted under this provision.
Disclaimer: This information is intended for general guidance only and does not constitute legal advice. Please consult with a qualified lawyer for personalized advice specific to your situation.
Advocate J.S. Rohilla (Civil & Criminal Lawyer in Indore)
Contact: 88271 22304