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Section 138 of the Negotiable Instruments Act, 1881 (hereinafter referred to as “Ni Act”) deals with the offence of dishonour of cheque for insufficiency of funds in the account of the drawer. Section 138 of the Ni Act creates a civil as well as criminal liability on the drawer of the cheque.

Procedure to be followed under Section 138 of the NI Act

Section 138 of the Ni Act lays down the procedure to be followed in case of dishonour of cheque due to insufficiency of funds in the account of the drawer. The procedure to be followed is as follows:

1. The payee or holder in due course of the cheque in question must present the cheque to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier.

2. The bank must return the cheque unpaid to the payee or holder in due course with a note stating the reasons for dishonour of the cheque.

3. Upon receipt of the unpaid cheque with the note, the payee or holder in due course must issue a demand notice to the drawer of the cheque within thirty days of the receipt of the unpaid cheque.

4. The demand notice must be sent by registered post with acknowledgment due or by speed post or by courier service or by electronic mode.

5. The demand notice must specify the amount due, the date of presentation of the cheque to the bank, the date of return of the cheque unpaid by the bank, the name of the bank, a copy of the unpaid cheque and the reasons for the dishonour of the cheque.

6. The drawer of the cheque must make the payment of the amount due within fifteen days of the receipt of the demand notice.

Punishment for Dishonour of Cheque under Section 138 of the NI Act

If the drawer of the cheque fails to make the payment of the amount due, within fifteen days from the receipt of the demand notice, then the drawer shall be deemed to have committed an offence under Section 138 of the Ni Act. The punishment for the offence of dishonour of cheque is imprisonment for a term which may extend to two years or with fine which may extend to twice the amount of the cheque or with both. It is important to note that the payee or holder in due course of the cheque must file a complaint under Section 138 of the Ni Act before the court within one month of the expiry of the fifteen days period from the receipt of the demand notice.

Conclusion

Section 138 of the Ni Act creates civil as well as criminal liability on the drawer of the cheque. The procedure to be followed in case of dishonour of cheque due to insufficiency of funds in the account of the drawer is provided under Section 138 of the Ni Act. The punishment for the offence of dishonour of cheque is imprisonment for a term which may extend to two years or with fine which may extend to twice the amount of the cheque or with both. It is important to note that the payee or holder in due course of the cheque must file a complaint under Section 138 of the Ni Act before the court within one month of the expiry of the fifteen days period from the receipt of the demand notice.