The Negotiable Instruments Act, 1881, covers the offense of cheque bounce in Section 138. The purpose of this section is to guarantee checks’ legitimacy as a dependable form of payment and to give the payee options for legal action in the event that a check is returned unpaid. 

Understanding Cheque Bounce 

A cheque is said to have bounced when it is returned by the bank unpaid. A number of factors, such as insufficient money in the drawer’s account, a disparity in the signature, or a closed account, may cause this. If a check bounces, the drawer may face serious financial and legal repercussions.

Key Provisions of Section 138 

1. Offense and Penalty : A person commits an offense under Section 138 if a check they draw is returned unpaid by the bank for lack of funds or if the amount drawn exceeds the amount scheduled to be deducted from that account. The drawer of the cheque can be punished with imprisonment for up to two years, a fine which may extend to twice the amount of the cheque, or both.

2. Conditions Required: 

• The cheque must have been presented to the bank within six months from the date it is drawn or within its validity period, whichever is earlier.
• The payee or holder in due course must issue a written notice to the drawer within 30 days of receiving information from the bank regarding the dishonor of the cheque.
• The drawer has 15 days from the receipt of this notice to make the payment. If the payment is not made within this period, the payee can file a complaint in the court within one month of the expiry of the 15-day period.

3. Jurisdiction: The court where the payee’s bank branch is located may receive the complaint. The Negotiable Instruments (Amendment) Act, 2015 provided clarification on this in order to provide a distinct jurisdiction for case filing.

Legal Proceedings 

Once a complaint is filed, the court issues a summons to the drawer. During the trial, the complainant must prove that:

• Cheque was drawn by the accused.
• The Cheque was presented to the bank within the stipulated time.
• The cheque was returned unpaid due to insufficient funds or any other reasons.
• A legal notice was issued to the drawer. 
• The drawer failed to make the payment within the stipulated period. 

Recent Developments 

The legal framework surrounding Section 138 has seen several amendments and judicial interpretations to streamline the process and ensure timely resolution of cheque bounce cases. The amendment regarding Jurisdiction and allowing interim compensation to the complainant are some of the notable changes.

Conclusion 

Section 138 of the Negotiable Instruments Act, 1881, plays a crucial role in maintaining the sanctity and trust in commercial transactions involving cheques. It provides a stringent mechanism to address the issue of cheque bounce, ensuring that the drawer honors their financial commitments and upholding the credibility of cheques as a mode of payment.

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Click to Read Copy of Judicial Proceedings