Cheque bouncing, also known as cheque dishonour, is a common financial issue with significant legal repercussions under Indian law. Governed primarily by Section 138 of the Negotiable Instruments Act, 1881, cheque bouncing can lead to severe consequences for the issuer, including criminal prosecution. This blog delves into the legal implications of cheque bouncing from a Section 138 perspective.
Understanding Section 138 of the Negotiable Instruments Act
Section 138 of the Negotiable Instruments Act, 1881, addresses the issue of dishonoured cheques. According to this section, if a cheque is returned unpaid by the bank due to insufficient funds or if it exceeds the amount arranged to be paid from the account, the issuer can be held criminally liable. The following key points outline the legal framework:
- 1. Issuance of Cheque: The cheque must be issued for the discharge of a legally enforceable debt or liability.
- 2.Dishonour of Cheque: The cheque must be presented within its validity period, typically three months from the date of issuance. If dishonoured, the payee must receive a return memo from the bank stating the reason for dishonour.
- 3.Notice of Demand: Upon receiving the dishonoured cheque, the payee must issue a written notice to the drawer within 30 days, demanding payment of the cheque amount.
- 4.Failure to Pay: If the drawer fails to make the payment within 15 days of receiving the notice, the payee can file a complaint under Section 138.
Legal Consequences of Cheque Bouncing
The legal consequences of cheque bouncing under Section 138 are stringent and can include:
Labour Laws
- 1.Criminal Penalty: The issuer of the dishonoured cheque can face imprisonment for up to two years and/or a fine which may extend to twice the amount of the cheque.
- 2.Civil Liability: Apart from criminal liability, the drawer may also face civil suits for the recovery of the cheque amount along with interest and legal costs.
- 3.Impact on Creditworthiness: A criminal record for cheque bouncing can adversely affect the issuer’s creditworthiness and financial reputation.
Defences Available
The accused drawer can defend themselves under Section 138 by proving:
- The cheque was not issued for any legally enforceable debt.
- The payee did not issue the notice within the stipulated time.
Preventive Measures
To avoid the legal implications of cheque bouncing, individuals and businesses should:
- Ensure sufficient funds are available in the account when issuing a cheque.
- Regularly reconcile bank statements to avoid any discrepancies.
- Respond promptly to any legal notices related to cheque dishonour.
Conclusion
Cheque bouncing can have severe legal consequences under Section 138 of the Negotiable Instruments Act, 1881. It is crucial for individuals and businesses to understand the legal framework and take preventive measures to avoid the repercussions of dishonoured cheques. Staying informed about your rights and obligations can help mitigate risks and ensure financial stability.
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