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Analysis of Section-138 of Negotiable Instruments Act

 Analysis of Section-138 of Negotiable Instruments Act

By Shagun Mahendroo


Since the Negotiable Instrument Act was passed before our country gained independence, the majority of its provisions are backed up by English law. Certain changes to the Act were adopted after independence to strengthen the provisions. The statute was drafted in 1866 and went into effect in 1881.

The Negotiable Documents Act governs a variety of negotiable instruments such as promissory notes, bills of exchange, and checks. In simple terms, it refers to any transferrable document that is now being delivered.

In Chapter XVII - Of Penalties in Case of Dishonour of Certain Cheques for insufficiency of Funds in Records from Section 138 to Section 148 of The Negotiable Instruments Act, 1881, a statutory and judicial perspective is focused on the various elements of regulations and procedures established in cases similar to Cheque Dishonour. The goal of decriminalising this clause is to encourage foreign investment in our country.

The penalties for a cheque dishonour is outlined in Section 138 of the Negotiable Instruments Act. The Negotiable Instruments Act of 1881, Section 138, allows legal redress in the event of a cheque bounce. By establishing the infraction, the major goal is to stimulate the usage of cheques and strengthen the legitimacy of cheque transactions. A non-cognizable offence is one that is committed under Section 138. It is also a bailable offence.

The following elements will be present in the section 138 offence:

  • Cheque drawn by the drawer for the payment of a debt or other obligation.

  • Cheque must be presented within 6 months of the date it was drawn.

  • Cheque dishonour and unpaid return by the drawee bank.

  • Within 30 days of receiving information from the bank regarding the return of a cheque as unpaid, send a statutory notice to the drawer seeking payment of the cheque amount.

  • Failure to make a form payment by the drawer within 15 days after receiving the Notice

A person who violates Section 138 is subject to imprisonment for a term of up to two years, or a fine of up to twice the amount of the check, or both.

Section 138 establishes a criminal offence in the case of dishonour cheques based on insufficient funds in a person's bank account that exceeds the amount arranged to be paid from that account by an agreement signed with the bank as specified in the act.

Procedure for Filing a Complaint: 

After following all of the steps outlined in Section 138 of the Act, the Complaint must be filed with the Concerned Magistrate within 30 days of the day on which the drawer's 15-day term for monetary payment expires. The Complainant must sign the complaint himself or through a fully authorised Power of Attorney holder. If the complaint is accompanied by an affidavit from the complainant, the appropriate magistrate will review the complaint and papers on the day it is presented.

As previously stated, summonses will be issued to the accused in accordance with section 144 of the act. If the accused is served with a summons and appears in court, the court will urge him to post bail to ensure his attendance during the trial (since the offence under Section 138 is a bailable offence) and issue a warrant to the accused under section 251 of the CRPC. The investigation into the case then begins.
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