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Section 138, 141 and 142 of the Negotiable Instrument Act 1881
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Section 138, 141 and 142 of the Negotiable Instrument Act 1881
Section 138, 141 and 142 of the Negotiable Instrument Act 1881

A cheque is a bill of exchange which is payable on demand. There are two parties in a transaction: The person who issues the cheque is known as the drawer, whereas the person under whose favour the cheque is issued is known as the drawee. According to section 13 of the Negotiable Instruments Act 1881, a negotiable instrument means a promissory note, bill of exchange or cheque. The cheques are governed under the Negotiable Instruments Act 1881. A cheque bounce is termed as the cheque that cannot be processed because of the insufficient funds that are available in an individual’s bank account. The drawee issues a cheque bounce notice/demand notice to the drawer. The Cheque bounce notice states that if the amount due is not paid within the prescribed time, then the drawee will initiate the legal proceedings under section 138 of the Negotiable Instruments Act 1881 against the drawer.

Following are the provisions that are mentioned under Section 138, 141 and 142 of the Negotiable Instrument Act 1881.

Section 138 of the Negotiable Instrument Act 1881

Section 138 of the Negotiable Instrument Act 1881 states the provision relating to the dishonour of cheque for insufficiency of funds in the bank account. If there is any cheque issued by the drawer to the drawee to pay any amount and the cheque is returned/dishonoured by the bank because of the insufficient amount in the bank account to honour the cheque. The cheque is also dishonoured if it exceeds the amount that has been arranged to be paid from that bank account (by an agreement made with the bank).

Section 138 of the Negotiable Instrument Act 1881 shall not be applicable if the cheque has been presented to the bank after the period of its validity (after a period of 3 months). Section 138 of the Negotiable Instrument Act 1881 shall be applicable if the payee makes a demand for the payment of the money by giving a cheque bounce notice to the drawer within a period of 30 days from the receipt of the information from the bank regarding dishonour of cheque. This section shall also apply if the drawer fails to make a payment within 15 days from the receipt of cheque bounce notice.

Section 141 of the Negotiable Instrument Act 1881

Section 141 of the Negotiable Instrument Act 1881 states the provision relating to the offences that are committed by the company under section 138. In case if the offence is committed by any person who was in charge of the company and was responsible for the conduct of the business, then the person and also the company would be deemed guilty of the offence. However, if he proves that he had exercised due diligence in order to prevent such offence or if the offence was committed without his knowledge, then he would not be deemed guilty of an offence under section 138. In case if the offence is committed by a director/manager/secretary/officer of the company (with the consent or connivance or due to neglect), then they will be prosecuted and punished. Hence, there is a vicarious liability of the officers of the company. A person who is nominated as a director of the company is holding any office or employment in the Central Government or State Government, or a financial corporation owned by the Central or State Government shall not be liable for the prosecution under this chapter.

Section 142 of the Negotiable Instrument Act 1881

Section 142 of the Negotiable Instrument Act 1881 states the provision relating to the Cognizance of offences. Following are the provisions mentioned under this section:

  • The Court shall take cognizance of the offence punishable under section 138 only when the drawee makes a complaint in writing.
  • The complaint must be made within a period of 30 days from the expiry of the cheque bounce notice period (15 days).
  • The offences punishable under section 138 shall be tried by the Metropolitan Magistrate or a Judicial Magistrate of the First Class and not by any other inferior court.
  • A complaint can be filed by a manager or any other person who is authorised by the company. Also, they can represent the company during the course of legal proceedings before the Court.
  • The Magistrate must look whether the ingredients of offence is fulfilled or not, before taking cognizance of the offence.
  • The cause of action for filing a complaint under section 138 would arise after the expiry of 15 days from the cheque bounce notice and if the drawer fails to pay the amount within such period.
  • The drawee cannot make a complaint after the period of 30 days from the expiry of the cheque bounce notice period (15 days) as it is time-barred.
  • The drawee must allege that the cheque was dishonoured due to the insufficient fund in the bank account, even if the payment was stopped by the bank.
  • The limitation period will begin to run once the cause of action has arisen. The limitation period could not be stopped by presenting new cheque so as to have the fresh cause of action and fresh limitation period.
  • When the cheque is issued in favour of the company, a complaint under section 138 can be filed by the manager or any other officer who is authorized by the company.
  • Section 142 of the Negotiable Instrument Act 1881 does not prohibit or excludes the complaints that are being made by the Power of Attorney or Agents of the drawee.

Conclusion

In India, the Cheque bounce is considered to be one of the serious offences. It is also punishable with imprisonment or a fine mentioned under section 138 of the Negotiable Instruments Act 1881. The term of imprisonment may extend upto two years, and the fine may extend to twice the amount of the cheque drawn. There can also be a case where both imprisonment and fine will be given as a punishment for cheque bouncing. Hence, an individual can file a criminal case under section 138 of the Negotiable Instrument Act 1881, and it can also file a Summary suit under Order 37 of the Criminal Procedure Code 1908.

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