Section 138 of the Negotiable Instruments Act (Legal Notice)

Section 138 of the Negotiable Instruments Act (Legal Notice)

Section 138 of Negotiable Instruments Act was framed to keep a check on the bounced cheques. If you have received a cheque that got bounced, you can Draft a legal notice. The notice must comply with Section 138 of the Act on Negotiable Instruments. The issue of notices should be taken with great caution, provided that most cases of faulty notifications fail in compliance with Section 138 of Negotiable Instruments Acts.

What is a cheque bounce notice?

Cheque bounce notice is a clear and severe intimation to the cheque issuer that if payment is not rendered promptly, the cheque recipient may take legal action. A Notice of Section 138 must be sent to the check issuer within 30 days of check return due to validity.

In case of dishonours of a cheque according to Section 138 of NI Act of the Law on Negotiable Instruments, this Notice shall be given to the defaulting debtor via a Notice from the unpaid creditor (payee) through an Advocate.

The Notice is a sample legal warning, giving 15 days to the drawer to pay the unpaid checksum. The payee shall have the right to lodge a legal complaint. The payee can also begin legal action against the particular defaulting drawer only if the money wasn’t paid within 15 days of the receipt of a notice.

What does the cheque involve?

• Drawer: Drawee is the person who issues the cheque i.e. the 'check creator'. The drawer may be the debtor.
• Payee: A person whose checksum is payable, i.e. whoever collects the cheque, is called Payee.
• Drawee: The bank in which the drawer keeps a check balance account, i.e. the bank to which the sum is directed is called Drawee.
• Payee's Bank: The bank where the Payee has a bank account where the checksum is deposited/credited or the bank whereby the payee deposits the check is called 'Payee's Banker'.

Stage by stage prosecution process for Cheque Bounce:

• Second, following check dishonour, the drawer is given a chance to refund the check balance immediately in a written note.
• Such notes shall be submitted within 30 days of obtaining the Payee banker's 'Cheque Return Memo.'
• A 15-day notice period shall be stated in any notice sent to the Drawer.
• No crime is believed to be committed by Drawer if the Drawer pays the full amount within the 15-day notice span.
• If not, the Payee can choose to claim against such defaulting Drawee in the competent court.
• Such a report shall be made within one month from the 15-day expiry of the notice.

Section 138 of the NI Act

A cheque is commonly used and post-dated checks are also used in various business transactions. Post-dated cheques are issued to give the check drawer some accommodation. It is therefore important to ensure that the check drawer does not misuse the accommodation given to it. The Negotiable Instruments Act, 1881 ('Act') deals with negotiable instruments, such as promissory notes, bills of exchange, checks, etc. Sections 138 to 142 of Chapter XVII were implemented to inculcate trust in the effectiveness of banking operations and give legitimacy to the negotiable instruments used in business transactions. If a party issues a check as a mode of deferred payment and the payee accepts the cheque in the same way that he or she receives his payment on the due date, then he or she should not suffer on account of non-payment.

The penal provisions in Sections 138 to 142 of the Act ensure that obligations in the form of late payments are fulfilled by the issuance of checks. Section 138 of the Act sets out the conditions under which a cheque case is filed. The components required to comply with Section 138 of NI Act are as follows:

• A person must have received a check for payment of money to another person for the discharge of any debt or other liability.
• This check was sent to the bank within three months.
• The cheque shall be returned to the bank without being paid. This happens because of a lack of funds or because it exceeds the amount which was agreed to be paid out of that account. This can be done through an arrangement reached with the bank.
• The payer demands payment of the money to the drawer from the obtained information within 15 days by sending a written notice.

Consequences of Cheque's Dishonor:

The payee can re-deposit the check during its validity (within 3 months from the date of issue) or take legal action. The payee shall notify the drawer in writing if he decides to give the payee sufficient time to reimburse the amount in law.

If the payee refuses to pay the required amount of obtaining the bank's memo within 15 days, the action may be initiated under section 138 of the Negotiable Instrument Act (NI Act). Serving notice before taking any legal action is mandatory for Cheque dishonour.

Procedure to be followed in matters relating to Article 138 of the Act is as follows:

• A legal notice shall be sent to the drawer by registered mail containing all relevant information within 15 days of cheque dishonour. On the other hand, if payment is not made, a claimant is to bring a criminal case according to the Section 138 of the Act, with the appropriate magistrate court within 30 days from the date of expiry date which is stated in the notice.
• The defendant or his designated attorney will present in the witness box and provide specifics of the case. If it is satisfied and the complainant finds substance, the accused will be summoned to appear before the Court.
• If the accused abstain from appearing after being served with the summons, the court may issue a bailable warrant. Even afterward a non-leasing warrant may be issued if the drawer does not appear.
• If the drawer/accused appears, he can have a bail bond for the court. After which the accused's plea is recorded, the court will post the case for punishment if he pleads guilty. Unless the person accused denies the charges a copy of the complaint will be sent to him.
• To support his complaint, the plaintiff may present his evidence by way of an affidavit and produce all documents including the original. The complainant is tested by the accused or his lawyers.
• The accused will be given a chance to prove himself. The accused will also be allowed to present his documents and witnesses in support of his case. The plaintiff must investigate the accused and his witnesses.
• The final stage of the trial is the arguments in which the court renders a judgment. If the accused is acquitted, the matter ends but the defendant can continue to appeal before the High Court, and if he is convicted, he is still entitled to appeal to the Court of Sessions.
• The crime under Article 138 of the Act has been made compoundable. It should be noted.

What are the required documents to be submitted along with the Complaint?

• Copy of Original Cheque
• Return Memo which was given by the Bank
• Copy of Demand Notice
• Postal Receipt
• Limitation Clause

What’s the place of filing the complaint?

Vakilsearch will help you file the complaint. Cheque Dishonor Allegation lies before the First Level Court Magistrate or the Metropolitan Magistrate.

• Place of the bank in which the required cheque is drawn
• Place where the cheque is given to the bank
• Location of the respected residence/business of the complainant
• Residence or the business of the Accused place
• The place from where the notice is sent to the drawer of the cheque asking for the amount on the cheque

Example Legal Notice - Notice Format Under Section 138 of the NI Act

(Date)

To

Sub.:- Legal notice under Section 138 of the Negotiable Instrument Act.

Sir,

The cheque No.— dated ——for an amount of —drawn on the ————branch, was issued by you in place of discharge of your financial liabilities to us.

The said cheque was presented for payment but the same has been returned by your bank with the endorsement ————. The Bank has informed us through their cheque return memo dated ———–.

You are now asked immediately to pay the amount specified above according to section 138 of the Negotiable Instrument Act, failing which we will begin criminal proceedings against you as envisaged in the section referred to above.

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