by In the realm of financial transactions, cheques have long been a cornerstone for conducting business. They provide a convenient and widely accepted method of payment, offering security and assurance to both parties involved. However, instances where cheques are dishonored due to insufficient funds or other reasons can lead to legal consequences under the Negotiable Instruments Act, 1881.
What is Section 138 of the Negotiable Instruments Act?
Section 138 of the Negotiable Instruments Act, 1881 deals specifically with cases where a cheque is dishonored by a bank due to insufficient funds or if it exceeds the amount arranged to be paid from that account. This section was introduced to enhance trust in the efficacy of banking transactions and to discourage the issuance of cheques without adequate funds.
Key Provisions of Section 138:
Notice Period: Upon receiving information from the bank regarding the dishonor of a cheque, the payee (the person to whom the cheque is issued) must issue a notice to the drawer (the person who issued the cheque) demanding payment of the amount within 30 days of receiving the information from the bank.
Drawer’s Obligation: The drawer has 15 days from the receipt of the notice to settle the dues. If the payment is not made within this period, the payee can proceed to file a criminal complaint under Section 138 of the Act.
Legal Action: The complaint must be filed within one month (30 days) of the expiry of the 15-day period given to the drawer for making the payment. This ensures timely initiation of legal proceedings against the defaulter.
Understanding the time Limit for Filing a Cheque Bounce Case
The time limit for initiating legal proceedings under Section 138 is crucial. It ensures that both parties act swiftly in resolving the issue of the dishonored cheque. Here’s how the timeline generally works:
Cheque Presentation
The initial stage includes submitting the cheque to the bank for processing. There are no legal limitations on the number of times a cheque can be submitted, but it must be done within the cheque’s validity period, usually three months from the date of issue.
Dishonor of Cheque:
If a Bank/Financial Institution declines to honor a cheque that you have presented, it is referred to as a dishonored cheque. This refusal may be due to factors like inadequate funds in the account, a discrepancy in the signature, or a cheque that is post-dated.
In the event that the cheque is not honored, the bank will send back the cheque accompanied by a memorandum explaining the reason for dishonor. Payee receives notice from the bank about the dishonor.
Notice to Drawer within 30 days:
Upon reception of the dishonored cheque, the payee (or holder of the cheque) is required to dispatch a demand notice to the drawer (the individual who issued the cheque).
The notice should request the settlement of the cheque amount and should be dispatched within 30 days from the receipt of the cheque return memo from the bank.
The notice must be in written form, outlining the transaction details, the cheque particulars, the presentation date, the dishonor date, and a request for payment.
[When notice by registered post returned unclaimed there is presumption of service]
1. Rahul vs. Arihant Fertilizers 2008(4) Mh.L.J. 365 (SC) ,
2. K. Bhaskaran vs. Shankaran Vidhyabalan 1999 AIR SCW, 3809.
Waiting Period- within 15 days of receiving the notice:
Upon receipt of the notice, the drawer has a 15-day window to settle the payment, which is a critical period that allows the drawer one last chance to resolve the situation by making the payment.
[Cause of action arises when notice is served on the drawer and drawer fails to make payment of the amount of cheque within 15 days]
Filing the Complaint within one month (30 days) after the 15-day period:
If the drawer does not make the payment within 15 days of receiving the notice, the payee is entitled to file a complaint in court. The complaint must be submitted within 30 days after the 15-day payment period has ended. This results in a 45-day deadline for filing a cheque bounce case, starting from the conclusion of the initial 15-day notice period. Consequently, the complainant has 45 days in total (30 days + 15 days) to take legal action by filing a complaint under Section 138 of the Negotiable Instruments Act.
[Limitation to file complaint is one month from the date of cause of action]
However, by Amendment Act of 2002 court is empowered to take cognizance of the offence even if complaint is filed beyond one month by condoning the delay if sufficient cause is shown. It has been held in various other cases that offence is not made out
Day By Day Calculation for filing Complaint Sec.138
Implications of Missing the Time Limit:
If the payee fails to adhere to the time limits prescribed under Section 138:
- The legal recourse may become more complex.
- The credibility of the case may be affected.
- The court may not entertain the complaint, leading to potential delays or dismissals.
Conclusion:
In essence, Section 138 of the Negotiable Instruments Act, 1881 emphasizes promptness and adherence to timelines when dealing with cases of dishonored cheques. It aims to streamline legal proceedings and ensure that parties involved in such transactions can seek redress swiftly and efficiently. Understanding these time limits is crucial for both payees and drawers, as it governs the legality and enforceability of their claims under this important provision of Indian law.
As businesses and individuals continue to rely on cheques for financial transactions, awareness of these legal provisions becomes indispensable to maintain trust and efficiency in the financial ecosystem.
Disclaimer: :
This information is provided for general guidance purposes only and should not be considered as legal advice. It is recommended to seek personalized advice from a qualified lawyer that is tailored to your specific situation.
Author –
Adv. CS, CMA Jagannath Mane
