What Is a Cheque Bounce Case?Understanding Section 138 of the Negotiable Instruments Act.

Author : Leharika Maroti 

Abstract

Cheque bounces also known as a dishonor of cheque cases are legal implications in India that are primarily governed under the sec 138 of Negotiable Instruments Act, 1881. It usually arises when a cheque is presented for payment and becomes invalid or returned due to insufficient funds in an individual's bank account. Section 138 of the Negotiable Instruments Act examines the historical, legal and procedural aspects around cheque bounce cases. Further, it helps us understand Indian legal system stance in addressing dishonor of cheques and the laws regarding it.

Introduction

Cheques are a commonly used method of payment that is a medium for financial transactions commonly used in commercial transactions. Cheques are a convenient and reliable form of transactions. However, the efficiency of cheques depends on whether they are honored by the bank it is issued from. If not, then this leads to dishonor of cheques which is known as "cheque bounce". In cases where a cheque is dishonored, this leads to significant legal consequences. Further, to address issues of dishonored cheques and to ensure the credibility of commercial transactions through cheques "Sec 138 of the Negotiable Instrument Act, 1881" had been developed. When a cheque is returned due to insufficient funds and remains unpaid, this criminalizes dishonoring a cheque.

A cheque bounce occurs when a bank returns an issued cheque. This can be due to many reasons such as insufficient funds, account closure, a signature mismatch, or a postdated cheque. These are civil liabilities under which if a cheque is not honored, invokes criminal liability under sec 138 of Negotiable Instrument Act,1881.

The concept of negotiable instruments has played an important role in Indias commercial transactions. However, before 1980 the dishonor of a cheque was a civil offence which was later criminalized. The Negotiable Instrument Act, 1881 is a major legal reform that deals with criminalizing cheque bounce cases. Over the years this statute has safeguarded commercial transactions.

Sec 138 of the Negotiable Instrument Act describes a cheque bounce case as "Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence".

This includes essential parts of dishonoring cheque due to insufficient funds, or the amount exceeds the mentioned amount. The drawer of the cheque is said to have committed an offence. Only if the cheque that is drawn is for a legally enforceable, the cheque had been presented within six months or within its validity period, the payee has issued a notice to the drawer within 30 days from the date of receiving information about dishonoring cheques and if the drawer has failed to pay cheque amount within 15 days of receiving the notice from the payee. Any failure to comply with the above essentials constitutes a criminal offence with penalties of up to two years in jail, a fine up to two times the amount dishonored.

The main purpose of sec 138 of the Negotiable Instruments Act, 1881, is to enhance the credibility of dishonoring cheques based transactions and provide a framework for dealing with cases of dishonoring cheques. By criminalizing this offence, it makes a better framework for ensuring financial crimes are dealt with properly.

In order to file a complaint for a cheque bounce case an individual must first present the cheques that were dishonored with is validity and the bank will issue a notice stating why the cheque has been bounced. Later, a legal notice is issued and sent to the drawer within 30 days if the cheque bounces. The drawer after receiving the notice has 15 days to make payment and honor the cheque. Further if the payment is still not made the complaint is filed in the magistrate court where later summons and trial will take place.

Judicial Interpretations

Throughout the years there are many judicial precedents that have been developed to further interpret Sec 138 of the Negotiable Instrument Act, 1881. In the case of K. Bhaskaran V. Sankaran Vaidhyan Balan (1999), the supreme court held that the offence under sec 138 has five components that include drawing of a cheque, presenting it to the bank, return by the bank , notice to the drawer and failure of the drawer to pay within 15 days. This precedent clarified the essentials to file cheques in bounce cases and that it applies to all jurisdictions.

However, later in the case of Dashrath Rupsingh Rathod V. State of Maharashtra (2014) the previous case was overturned to a particular extent, the Supreme court held that a court only that is within the jurisdiction the bank where the dishonored cheque is located in, can try the case.

Following this case the parliament had introduced the Negotiable Instruments Act in 2015 to restore jurisdiction under which courts the case can be tried under.

Conclusion

Sec 138 of the Negotiable Instruments Act, 1881 remains an essential statute to ensure financial crimes are properly dealt with. This allows proper functioning and prevents commercial transactions from being normalized and ensures they are prevented. The criminalization of cheques bounces cases ensures a proper jurisprudence that ensures procedure is met with and it not only ensures transactions are made but also upholds principle of financial accountability. This reinforces trust and accountability in commercial transactions. As there is an increase in cheque transactions, the criminalization of cheque bounce cases under Sec 138 holds a strong reminder that financial trust must be maintained by ensuring legal consequences. A cheque bounce case holds the principle of legal and moral responsibility that one must honor.